Tax Type
Retail Sales and Use Tax
Description
Sales subject to tax; Interstate commerce exemption
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
05-12-1986
May 12, 1986
Re: §58.1-1821 Application/ Sales and Use Tax
Dear******************
This will refer to the March 20, 1986 letter of ********** in which was filed an application for correction of sales and use tax assessed to********* as the result of a recent audit, and our meeting of April 24, 1986 to discuss the appeal.
The manufacturing and processing of credit cards, bank teller cards, identification cards, and similar products by************** (Taxpayer) qualifies for the industrial exemptions set forth in Section 58.1-608 of the Code of Virginia. Therefore, the department's audit of the taxpayer will be revised to delete purchases of machinery, tools, supplies, and other items used directly in the manufacturing or processing of products for sale or resale. In addition, the lien place upon the taxpayer by the department has been removed (a copy of the lien release is enclosed). However, any taxable sales of products during the audit period for which the taxpayer did not collect tax from its customers will be included in the revised audit and the taxpayer will be required effective this date to collect the sales tax from its customers.
In determining when the tax should be collected, the taxpayer should bear in mind that all sales taking place in Virginia are subject to the tax by virtue of Virginia Code Section 58.1-603. This includes transactions in which the property sold is delivered to customer within Virginia and when a customer comes into Virginia from another state to pick the property he purchased. In addition, Virginia Code Section 58.1-603 impose the sales tax upon "each item or article of tangible personal property stored in this State for use or consumption in this State." The tax does not apply, however, to sales in interstate commerce by virtue of Virginia Code Section 58.1-608.20, which exempts the "[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside the Commonwealth" from the sale and use tax. As stated in Section 630-10-51 of the Virginia Retail Sales and Use Tax Regulations, such exempt sales include those where delivery is made to the purchaser outside of Virginia in the seller's vehicle by a independent trucker or contract carrier hired by the seller, or by the U.S. Post Office or a common carrier.
The interstate commerce exemption set forth above does not apply, however, in the event that the taxpayer sells products and at the direction of its customer places the products in the mail for delivery to the customer's cardholders in other states. In such an event, there is no sale in interstate commerce as delivery is not being made to the purchaser but to his cardholders. As stated by the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980), the possible constitutional problems "intended to avoid the possible constitutional problems involved in taxing interstate sales," rather than to exempt "the holding of goods in Virginia for delivery outside this State".
For your information I have enclosed copies of several documents that set fort the department's policy on three-party transactions of the type in question here. While the questions raised previously have primarily related to production and mailing of printed materials, these documents will be of benefit in understanding the department's longstanding policy. It should also be noted that this issue is presently under litigation in the matter of Hennage Creative Printers v. Commonwealth in the Circuit Court of the City of Alexandria.
If further questions or concerns arise out the revisions that will be made to the audit of the taxpayer, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner