Tax Type
Retail Sales and Use Tax
Description
Withdrawal of inventory for use within and without Virginia
Topic
Taxability of Persons and Transactions
Date Issued
02-27-1987
February 27, 1987
Re: Request for Ruling/Sales and Use Tax
Dear ******************
This will reply to your letter of December 29, 1986, in which you request a ruling on the application of the sales and use tax to certain warehousing activities of ******************.
FACTS
*********** (Taxpayer) proposes to establish a central warehouse operation for the storage and distribution of forms for its own use within Virginia and for the use of affiliates both within and without Virginia. The taxpayer proposes that it be allowed to purchase all inventory items under resale exemption certificates, under the understanding that the use tax will be remitted or sales tax collected on all items withdrawn from inventory for use within Virginia. Further, the taxpayer proposes that the interstate commerce exemption will apply to all items withdrawn from inventory for sale to affiliates for their use outside of Virginia.
RULING
Based upon the facts set forth in the taxpayer's letter, the taxpayer may purchase under resale certificates of exemption those items which will be placed in a central inventory both for the taxpayer's own use and for resale to its affiliates. However, the tax will need to be paid to the taxpayer's vendors on any inventory item that will be used exclusively by the taxpayer. Thus, any items which can be identified at the time of purchase as being for the taxpayer's own use may not be purchased under resale exemption certificates.
For those items purchased under resale exemption certificates, the taxpayer will be liable for the use tax on any items withdrawn from inventory for its own use, regardless of whether the item will be used in Virginia or elsewhere. The tax will be based on the cost price of the goods.
For those items withdrawn from inventory for sale to the taxpayer's affiliates, the transactions will be governed by Virginia Regulation 630-10-51. Therefore, if delivery to the affiliate occurs in Virginia, the sales tax must be collected based upon the sales price of the goods; however, if the delivery is by one of the means listed in the regulation, the transaction is nontaxable.
As noted in VR 630-10-51, the exemption will apply if the delivery is made outside of Virginia in the seller's own vehicle, by an independent trucker or contract carrier engaged by the seller, or by the U.S. Post office or a common carrier.
My ruling with respect to inventory stored for sale to the taxpayer's affiliates is predicated upon the assumption that the taxpayer and its affiliates will continue to constitute separate business entities. If however, the banks will constitute one corporate entity, the withdrawals from inventory would represent an intra-company transfer rather than a sale of tangible personal property. As such, all inventory items stored in Virginia for the taxpayer and its affiliates would be taxable when purchased for placement in the taxpayer's central inventory.
Lastly, I do not find basis for allowing the taxpayer to account for withdrawals from its existing inventory in the manner proposed on page 3 of its ruling request. This is because the proposed method would not take into account any difference between the sales price of items sold to affiliates within Virginia and the cost price of any items withdrawn from inventory by the taxpayer. I am willing, however, to allow the taxpayer to treat itself as the consumer of all items in the present inventory until such inventory is exhausted. Thus, all sales to affiliates, whether taxable or exempt, would be deemed made from new inventory stocks until the existing inventory is exhausted.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner