June 30, 2015
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you request a ruling on behalf of ***** (the "Taxpayer") regarding the application of Virginia's retail sales tax to layaway cancellation fees.
FACTS
The Taxpayer offers a layaway service that requires no initial set up fee. If an order is cancelled, the customer is charged a $10 cancellation fee and refunded the remaining balance paid towards the purchase. Title never transfers to the items unless the customer completes all payments. You ask if the $10 cancellation fee is subject to the retail sales tax.
RULING
Pursuant to Va. Code § 58.1-603 1, the Virginia sales tax is imposed on the gross sales price of each item of tangible personal property when sold at retail or distributed in Virginia. The term "retail sale" is defined in Va. Code § 58.1-602 as "a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter ...." That same section defines "sale" as any transfer of title or possession, or both, of tangible personal property for a consideration.
The facts presented indicate there is no, transfer of tangible personal property in a cancelled layaway transaction. The customer cancels the order and title never transfers. Any amount paid towards the purchase is refunded to the customer. Based on the information provided, a sale as defined under Va. Code § 58.1-602 never occurs.
Accordingly, the layaway cancellation fee is not subject to sales tax.
In Public Document 10-3 (01/13/2000), the Department found that a nominal room cancellation fee charged by a hotel room renter was not subject to tax as part of the room rental when the customer was never charged for the room and had no right to possess the room. The layaway cancellation fee in this case is similar in that a sale of tangible personal property does not occur because title and possession is not transferred and the balance paid towards the purchase is refunded to the customer.
This ruling is based on the facts provided as summarized above. Any change in facts or the introduction of new facts could lead to a different result.
The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6020301576