Tax Type
Retail Sales and Use Tax
Description
Newspaper advertising supplements; Handling charges; Bad debt deduction
Topic
Subtractions and Exclusions
Taxability of Persons and Transactions
Date Issued
07-07-1987
July 7, 1987
Re: §58.1-1821 Application/Sales and Use Tax
Dear ***************
This will reply to your letter of February 6, 1987, in which you submit an application for correction of sales and use tax assessed to the ************* as the result of a recent audit.
FACTS
A recent audit of ********* (Taxpayer) produced an assessment for the failure to remit the sales and use tax on various items of tangible personal property used in the conduct of its business. Among the items included in the department's audit were newspaper advertising supplements purchased prior to July 1, 1984, which the taxpayer took delivery of in Virginia, but which were subsequently distributed outside of the state. The taxpayer contests this portion of the assessment, contending that the newspaper advertising supplements were exempt prior to July 1, 1984 under §58.1-608.30 of the Code of Virginia.
In addition, the taxpayer was assessed tax on handling charges that were includable in the sales price of tangible personal property, which the taxpayer contends was improper prior to the January 1, 1985 publication of Virginia Regulation 630-10-107. Lastly, the taxpayer contests the denial of deductions for bad debts. Such deductions were denied by the department's auditor as he was unable to verify that the amounts listed on bad checks equalled the taxable gross receipts previously reported by the taxpayer. The taxpayer suggests that such information is available and requests further analysis by the department.
DETERMINATION
Following is the application of the tax to the issues raised by the taxpayer:
Newspaper Advertising Supplements
Although advertising supplements distributed with or as part of a newspaper were not exempted from the sales and use tax until July 1, 1984, §58.1-608.30 of the Code of Virginia provided a limited exemption for such printed materials prior to that date. The exemption applied to:
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- Catalogs and other printed materials used in the advertising of tangible personal property for sale...when stored for twelve months or less in the Commonwealth and distributed for use without the Commonwealth.
- Catalogs and other printed materials used in the advertising of tangible personal property for sale...when stored for twelve months or less in the Commonwealth and distributed for use without the Commonwealth.
Handling Charges
§58.1-602.17 of the Code of Virginia excludes "transportation charges separately stated" from the definition of "sales price," upon which the sales tax is computed. Virginia Regulation 630-10-107 provides further that "transportation...charges do not include...handling charges;" however, the taxpayer contends that handling charges should not be taxed prior to the January 1. 1985 effective date of the regulation.
The taxpayer is correct in that Virginia Regulation 630-10-107 in its present form did not become effective until January 1, 1985 and did not have any retroactive effect. Nonetheless, the department has consistently deemed handling charges to be part of the taxable sales price of an article. Unlike postage or common carrier charges, a handling charge does not represent a charge for the delivery of tangible personal property to a purchaser. Thus, I find no basis in this instance for the deduction of handling charges paid prior to January 1, 1985 from the sales price of taxable tangible personal property.
I understand, however, that the charges in question included both handling and transportation to the purchaser. As such, I will allow the taxpayer for this audit only to estimate the percentage of such charges that represented transportation to the purchaser. In the future, however, any combined handling and transportation charge will be deemed taxable in full.
Deduction for Bad Debts
The deduction for bad debts must be computed in the manner set forth in Virginia Regulation 630-10-11 and my letter to the taxpayer of July 31, 1986. It is my understanding that the deduction was denied in this instance as our auditor was unable to verify that the amount shown on a bad check was equivalent to the amount of the taxable sale.
The taxpayer suggests, however, that information is indeed available in most instances from which the amount of taxable goods purchased with a bad check may be determined. The taxpayer claims that information relating to the amount of sale is generally imprinted on the reverse of all checks and that this amount may be deducted from the total amount of the bad check in order to compute the bad debt deduction on each transaction.
Based on the information presented, this matter will be returned to our ********** District office for further review. If our auditor concludes that sufficient information exists to verify the claimed bad debt deductions, the department will revise the assessment in this regard.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner