Tax Type
Retail Sales and Use Tax
Description
Alteration tickets and bags
Topic
Taxability of Persons and Transactions
Date Issued
06-29-1988
June 29, 1988
Re: §58.1-1821 Application/Retail Sales and Use Tax
Dear**************
This will reply to your letter of April 8, 1988, seeking the correction of an assessment issued in the above referenced case for the period September, 1984, through August, 1987. This letter will also respond to your request for ruling.
FACTS
********** ("The Taxpayer") is a retailer of men clothing and has stores located throughout the United States including the Commonwealth of Virginia. This appeal for correction of assessment stems from a third generation audit of the Taxpayer. The contested issues are: 1) alteration tickets. 2) items purchased from Virginia vendors which are shipped to Taxpayer's stores located outside Virginia. 3) the penalty assessed upon the Taxpayer. The Taxpayer also requests a ruling as to whether use tax applies to alteration bags.
DETERMINATION
The Taxpayer uses alteration tickets which record measurements, alteration instructions and charges, and include the customer's name and address. The alteration tickets remain with the garment when delivered to the customer.
§ 630-10-53 of the Virginia Retail Sales and Use Tax Regulations provides that "[t]he tax does not apply to purchases of labels, tags or nameplates when used solely for packaging tangible personal property for sale. These purchases become part of the product for sale or resale." However, the tax "does apply to purchases of inserts and invoices, etc." Id.
The alteration tickets record measurements, alteration instructions, and charges for altered garments. Based on these facts provided by the Taxpayer, the alteration tickets do not qualify for the exemption cited above since they are not used solely for packaging tangible personal property for sale. Rather, the alteration tickets are used primarily in an administrative function by the Taxpayer showing details of a sale or purchase transaction. Therefore, the alteration tickets are essentially equivalent to invoices which are taxable.
The Taxpayer is contesting the assessment of the purchase of wrap counters from a Virginia vendor for shipment to the Taxpayer's stores outside of Virginia. These counters were shipped by common carrier from the vendor directly to the stores located outside Virginia. Taxpayer believes that these items are in the flow of interstate commerce and not subject to the use tax. The Department agrees. Virginia Retail Sales and Use Tax Regulation §630-10-51(A)(3), states that delivery to the purchaser outside the state by a common carrier to be in interstate commerce, regardless of who contracts with the carrier.
The Taxpayer also requests a ruling whether alteration bags are subject to retail sales and use tax. These bags, which hold garment cuttings and alteration tickets, are included in each sale of altered garments to customers. It is my opinion that such bags are packaging materials within the meaning of § 630-10-53 of the Virginia Retail Sales and Use Tax Regulations and thus qualify for exemption.
The Taxpayer finally protests the penalty assessed. Virginia Retail Sales and Use Tax Regulations §630-10-80, provides that "[p]enalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances." Since the Taxpayer has demonstrated substantial improvement in use tax compliance since previous audits, I find basis for abating 50% of the penalty assessed.
The audit will be adjusted according to this determination and we will issue a revised Notice of Assessment.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner