Tax Type
Retail Sales and Use Tax
Description
Assessment of shipping and handling charges on its sales to Virginia residents
Topic
Assessment
Internet Sales
Records/Returns/Payments
Date Issued
03-20-2013
March 20, 2013
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This reply is in response to your letter submitted on behalf ***** (the "Taxpayer"), in which you request correction of the retail sales and use tax assessment issued for the period March 2011 through July 2011. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer sells apparel via the Internet. The Department audited the Taxpayer and assessed additional tax and interest. The Taxpayer protests the assessment of shipping and handling charges on its sales to Virginia residents. The Taxpayer argues that although its sales transaction spreadsheet indicates charges for combined shipping and handling, it only bills its customers for shipping and presents an invoice to support its protest.
DETERMINATION
Virginia Code § 58.1-609.5 3 provides an exemption for separately stated transportation charges. Title 23 of the Virginia Administrative Code 10-210-6000 defines transportation charges as those charges for delivery from the seller to the purchaser, also described as "transportation-out," including postage or common carrier charges. The regulation further states that transportation charges do not include transportation charges from a manufacturer to a retailer's place of business for resale, nor do they include handling charges.
In Public Document (P.D.) 11-126 (7/6/11), the taxpayer was assessed for combined shipping and handling charges. The taxpayer argued that the charges were for shipping only and all handling charges were included in the sales price of the product. The taxpayer presented no additional documentation in the appeal. However, because it was a first audit of the taxpayer, the Tax Commissioner allowed the taxpayer additional time to provide documentation to the Department to support its argument. Also see P.D. 08-74 (6/16/08) and 97-79 (2/18/97).
During the audit, the Taxpayer provided a spreadsheet of its sales for the sample period. The spreadsheet contained a column labeled "Order/S/H." The auditor concluded that the column label identified combined shipping and handling charges. As such, all charges included in that column were held as taxable for the sample period and for the purposes of calculating the audit.
The Taxpayer argues that the charges are for shipping only and do not include handling. Although the Taxpayer presents an invoice to support its contentions, it is not for a sale included in the audit period. Additionally, based on the tax rate indicated on the invoice, the sale does not appear to charge the Virginia tax rate of 5%.
Notwithstanding the foregoing, in accordance with the cited public documents and because this matter involves a first audit of the Taxpayer, I will allow the Taxpayer one final opportunity to provide documentation supporting its position. The audit will be returned to the audit staff, who will contact the Taxpayer to schedule a mutually convenient time to the review the provided documentation. If no additional documentation is provided within 30 days of the date the audit staff contacts the Taxpayer, the assessment will be upheld as issued. In that event, an updated bill, with interest accrued to date, will be mailed, to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges.
The Code of Virginia section, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5073928320.M
Rulings of the Tax Commissioner