12-68 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Tangible personal property; Postage charge separately stated on the invoice

Topic

Exemptions

Tangible Personal Property

Taxable Transactions

Date Issued

05-03-2012

May 3, 2012

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period March 2008 through February 2011. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a commercial printer. The Taxpayer contests the assessment of the sales tax on transactions for which exemption certificates were accepted. The contested transactions are line items 1 through 19 and line items 21-23 included in the Non-Contested Sales exceptions lists. The Taxpayer states that it accepted exemption certificates in good faith from its customers, knowing that its customers would know better than the Taxpayer how the products were used in the customers' businesses. The Taxpayer states that reasonable care was used in accepting the exemption certificates and making the exempt sales to its customers.

The Taxpayer also contests the inclusion of line item 24 in the exceptions list. The Taxpayer maintains that the transaction at issue is for a postage charge. The Taxpayer states that it charged postage at the rate applied by the United States Postal Service, with no markup. The Taxpayer further maintains that the postage charge was separately stated on the invoice to the customer.

The Taxpayer requests that the audit and the assessment be revised to exclude the aforementioned line items.

DETERMINATION

Sales

Virginia Code § 58.1-612 requires all dealers to collect the tax levied by §§ 58.1603 and 58.1-604.

Virginia Code § 58.1-623 A states:

- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter.

Virginia Code § 58.1-623 B states:

- Such certificate shall be signed by and bear the name and address of the taxpayer; shall indicate the number of the certificate of registration, if any, issued to the taxpayer; shall indicate the general character of the tangible personal property sold, distributed, leased or stored under a blanket exemption certificate; shall be substantially in such form as the Tax Commissioner may prescribe.

Title 23 of the Virginia Administrative Code (VAC) 10-210-280 B states, "Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax free purchase of any item of tangible personal property not covered by the exact working of the certificate."

In P.D. 08-9 (1/11/08), the taxpayer owned and operated a hardware store, an industrial parts store and a rental center at four locations in Virginia. The audit of the taxpayer's sales and use tax records resulted in the assessment of sales tax on untaxed retail sales of various materials, equipment and supplies for which an exemption certificate was obtained. The taxpayer maintained that the contested sales should not be included in the audit because it acted properly in accordance with the law and regulations in accepting the exemption certificates. In this instance, a number of exemption certificates accepted by the taxpayer were incomplete and outdated. In addition, in many instances, the property sold was not of the same class as that identified on the certificates. For example, a manufacturing exemption certificate (Form ST-11) was accepted by the taxpayer for the exempt sale of roll bath tissues and orange cleaner. Further, the Agricultural Exemption Certificate (Form ST-18) was accepted for the exempt sale of a drainer opener, a plunger and a toolbox. None of these items are of the same class of items exempted by the language of the certificates accepted. The taxpayer did not accept the exemption certificates in good faith or exercise reasonable care and judgment. Therefore, no basis was found to remove these transactions from the audit.

In light of the above authorities, the line items at issue will be addressed separately below.

Line Items 1-4

The customer purchased envelopes and invoice forms from the Taxpayer. The Taxpayer provides its customer's Form ST-11, dated February 8, 1998, with its appeal. Block one (industrial materials for future manufacturing) and block two (machinery or tools) are checked. The kind of business listed for the customer is manufacturer -plumbing products.

In this instance, the manufacturing exemption certificate was accepted by the Taxpayer for the exempt sale of envelopes and invoices. These items are not of the same class of items excepted by the language of the exemption certificate accepted by the Taxpayer. In accordance with the cited authorities, the Taxpayer did not accept the exemption certificate at issue in good faith or exercise reasonable care and judgment. Therefore, I find no basis to remove these line items from the audit.

Line Items 5-14

The Taxpayer's customer is a data processor that services credit unions. The Taxpayer provides its customer's Form ST-10, dated January 18, 2010, with the resale exemption block checked. The Taxpayer's customer purchased direct mailing of statements and envelopes for various credit unions in the Commonwealth.

According to the customer's website, the Taxpayer's customer provides statement services to its credit union clients. The Taxpayer's customer can also print and mail statements for its clients, and the clients' members can access their eStatements through web banking. The Taxpayer's customer could have purchased the direct mail statements and envelopes from the Taxpayer to resell to the credit unions that it services. Accordingly, these transactions were properly made exempt of the tax pursuant to a resale exemption certificate. The line items at issue will be removed from the audit.

Line Items 15-17

The customer purchased envelopes and invoice forms from the Taxpayer. The Taxpayer provides its customer's Form ST-11, dated March 16, 2011, with its appeal. Block one (industrial materials for future manufacturing) and block two (machinery or tools) are checked. The kind of business listed for the customer is manufacturer - plumbing parts.

In this instance, the manufacturing exemption certificate was accepted by the Taxpayer for the exempt sale of envelopes and invoices. These items are not of the same class of items excepted by the language of the exemption certificate accepted by the Taxpayer. In accordance with the cited authorities, the Taxpayer did not accept the exemption certificate at issue in good faith or exercise reasonable care and judgment. Therefore, I find no basis to remove these line items from the audit.

Line Item 18

The Taxpayer's customer operates as a provider of PC-based protocol analyzers for special purpose data communication networks. The customer purchased flash drives and lanyards from the Taxpayer. The Taxpayer provides its customer's Form ST-10, dated April 9, 2008, with its appeal. The resale block on the exemption certificate is checked.

In this instance, the resale exemption certificate was accepted by the Taxpayer for the sale of flash drives and lanyards. Based upon an examination of the exemption certificate, a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Accordingly, this line item will be removed from the audit.

Line Item 19

The Taxpayer's customer purchased gold pens from the Taxpayer. The Taxpayer provides its customer's Form ST-10, dated March 10, 2011, with its appeal. The resale block on the exemption certificate is checked. The kind of business listed for the customer is a hotel.

In this instance, the resale exemption certificate was accepted by the Taxpayer for the exempt sale of pens. Based upon an examination of the exemption certificate, a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Accordingly, this line item will be removed from the audit.

Line Item 21

The Taxpayer's customer is engaged in the business of basic radio astronomy research and education. The Taxpayer's customer purchased sling sports bags from the Taxpayer. The Taxpayer provides its customer's Form ST-11, dated June 16, 2009, with the research and development block checked.

In this instance, the research and development exemption certificate was accepted by the Taxpayer for the exempt sale of sling sport bags. These items were not purchased for use or consumption directly and exclusively in basic research in the experimental or laboratory sense or research and development in the experimental or laboratory sense. As such, these items are not of the same class of items excepted in the language of the exemption certificate accepted by the Taxpayer. In accordance with the cited authorities, the Taxpayer did not accept the exemption certificate at issue in good faith or exercise reasonable care or judgment. Accordingly, I find no basis to remove this line item from the audit.

Line Item 22

The Taxpayer's customer purchased expanding mailers from the Taxpayer. The Taxpayer provides two multijurisdictional exemption certificates from its customer. One exemption certificate is dated October 30, 2008 and states that the customer is a filter manufacturer/distributor. The exemption certificate also lists filters as the type of property to be purchased from the seller. The exemption certificate is for a resale exemption.

The second exemption certificate is dated July 21, 2010. A Virginia registration/account number is not among the states listed. The customer is listed as a manufacturer of HVAC filtration products.

In this instance, a resale exemption certificate was accepted by the Taxpayer for the exempt sale of expanding mailers. These items are not of the same class of items excepted by the language of the exemption certificate accepted by the Taxpayer. Based upon an examination of the exemption certificate, a dealer could not reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Therefore, I find no basis to remove this line item from the audit.

Line Item 23

The Taxpayer's customer purchased purchase orders and invoice forms from the Taxpayer. The Taxpayer provides its customer's Form ST-10, dated March 10, 2011, with its appeal. The resale and the packaging materials equipment blocks are checked. The kind of business listed for the customer is original equipment manufacturer.

In this instance, the resale exemption certificate was accepted by the Taxpayer for the exempt sale of purchase orders and invoice forms. These items are not of the same class of items excepted by the language of the exemption certificate accepted by the Taxpayer. In accordance with the cited authorities, the Taxpayer did not accept the exemption certificate at issue in good faith or exercise reasonable care and judgment. Therefore, I find no basis to remove this line item from the audit.

Postage

Line Item 24

Virginia Code § 58.1-603 imposes the sales tax on the gross sales price of each item of tangible personal property sold at retail or distributed within the state. Virginia Code § 58.1-602 defines sales price, in pertinent part, as "the total amount for which tangible personal property or services are sold, including any services that are part of the sale, valued in money, whether paid in money or otherwise ...."

Virginia Code § 58.1-609.5 3 provides that the retail sales and use tax does not apply to "[t]ransportation charges separately stated."

Title 23 VAC 10-210-6000 A provides, in pertinent part:

- The tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to the tax.

Title 23 VAC 10-210-6000 B provides, in pertinent part, "[a]s used in this section the terms "transportation" and "delivery charges" mean charges for delivery from the seller to the purchaser, commonly known as "transportation-out," and include postage or common carrier charges."

In this instance, the invoice provided is for postage only. The postage charges are separately stated from the charge for the tangible personal property that relates to these charges. Pursuant to the cited authorities, separately stated postage charges are not subject to the retail sales and use tax. Accordingly, the line item at issue will be removed from the audit.

CONCLUSION

The assessment will be revised in accordance with this determination. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill. Please remit payment to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *****, Post Office Box 27203, Richmond, Virginia 23261-7203.

The Code of Virginia sections, regulations and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may Contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Craig M. Burns
        Tax Commissioner

AR/1-4793524189.P

Rulings of the Tax Commissioner