April 20, 2016
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period May 2011 through May 2014. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a truck repair dispatch center located in *****. The Taxpayer receives calls from stranded motorists regarding disabled motor coaches or trucks. The Taxpayer uses a database to find a repairman near the disabled vehicle and sends the repairman to the disabled vehicle site. After the work is completed, the repairman sends its billing to the Taxpayer, who in turn bills the customer for the repairs. The bill lists taxable and non-taxable items and other added charges, including a handling charge to cover the Taxpayer's fees and expenses. Relying on Public Document (P.D.) 95-44 (3/15/95), the Department's auditor applied the sales tax to the handling charges as charges for services in connection with the sale of tangible personal property.
The Taxpayer also cites P.D. 95-44 and contends that a critical reading of the document leads a reader to the conclusion that some handling charges are taxable while others are not. To this end, the Taxpayer states that the handling charges that were included in certain invoices represent its markup or profit for the administrative coordination of the services that were provided. The Taxpayer contends that the handling charges in these instances are not associated with the sale of tangible personal property that would otherwise be taxable. The Taxpayer seeks a waiver of the contested portion of the assessment consisting of tax and interest on handling fees.
DETERMINATION
The Virginia retail sales and use tax is imposed on the "sales price" of tangible personal property. Virginia Code § 58.1-602 defines "sales price" as
the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever. "Sales price" shall not include (i) any cash discount allowed and taken; (ii) finance charges, carrying charges, service charges or interest from credit extended on sales of tangible personal property under conditional sale contracts or other conditional contracts providing for deferred payments of the purchase price; (iii) separately stated local property taxes collected; (iv) that portion of the amount paid by the purchaser as a discretionary gratuity added to the price of a meal; or (v) that portion of the amount paid by the purchaser as a mandatory gratuity or service charge added by a restaurant to the price of a meal, but only to the extent that such mandatory gratuity or service charge does not exceed 20% of the price of the meal. Where used articles are taken in trade, or in a series of trades as a credit or part payment on the sale of new or used articles, the tax levied by this chapter shall be paid on the net difference between the sales price of the new or used articles and the credit for the used articles. [Emphasis added.]
As so defined, sales price includes any amount charged as a markup for overhead expenses and other costs and profit in connection with the sale of tangible personal property. The definition makes it clear that absent a statutory exemption; labor, service charges, or any other additional expenses are taxable when made in connection with the sale of tangible personal property.
P.D. 95-44
In this document, the taxpayer contested the application of the tax to special handling charges when parts required special ordering or when extra labor was involved in the handling of an order. The taxpayer contended that in a competitor's business as well as in the taxpayer's prior audit, the Department found the taxpayer to be in compliance on the issue of handling charges and did not apply the tax. The taxpayer also contested handling charges held taxable in connection with sales to exempt entities.
The Tax Commissioner responded that handling charges were charges for services in connection with the sale of tangible personal property, the total amount of which was taxable. The Tax Commissioner noted that while handling charges may not have been an issue in the taxpayer's prior audit or in the audit of the taxpayer's competitor, the transactions at issue were properly taxed. The Tax Commissioner noted that the taxpayer had not provided any evidence to show that handling charges were specifically reviewed in the taxpayer's prior audit.
The public document upholds the application of the tax to handling charges when such charges are in connection with the sale of tangible personal property. The document also provides that when sales of tangible personal property are exempt of the tax and an invoice is supported by a valid exemption certificate, that handling charges in conjunction with the sales of exempt tangible personal property would also enjoy the exemption as well.
In this instance, a review of the Taxpayer's invoices indicates that customers' repairs predominantly included the sale of tangible personal property. The emergency repair vendor performing the repairs invoiced the Taxpayer for the repair parts and services provided to the customers. The invoicing of the repair parts and services from the emergency repair vendor to the Taxpayer represents sales for resale. Accordingly, the Taxpayer's invoices to the customers include sales of tangible personal property and taxable services. The handling charge, in accordance with the statutory language in Va. Code § 58.1-602, represents a service in connection with the sale of tangible personal property. Therefore, I find that the Department's audit properly held the handling charges taxable and there is no basis for an adjustment of the assessment.
I note also that the auditor provided the Taxpayer with several other public documents [P.D.s 11-74 (5/17/11), 97-73 (2/18/97), and 09-62 (5/13/09)] addressing the taxability of road service fees and mileage, environmental fees and tire disposal fees, respectively. These documents provide guidance related to taxable charges in connection with the sale of tangible personal property.
The balances of the Department's assessments are correct. Updated bills, with interest accrued to date, will be sent to the Taxpayer shortly. No additional interest will accrue provided the updated bills are paid within 30 days from the dates indicated on the bill statements.
If you have any questions regarding this determination, please contact ***** of the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5849481706.Q