Tax Type
Retail Sales and Use Tax
Description
Credit service charges; Audit penalty
Topic
Collection of Tax
Penalties and Interest
Date Issued
04-04-1988
April 4, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear******************
This will reply to your letter of December 9, 1987 seeking the correction of sales and use tax assessments issued to ***************** as the result of a recent audit.
FACTS
**********("Taxpayer") is engaged in the retail sale of furniture and related products to the general public. In connection with its sales to customers, Taxpayer charges each credit customer a non-filing fee which is used to acquire insurance with respect to Taxpayer's risk of loss on the credit sale. Taxpayer contests the inclusion of these separately stated non-filing fees in the department's audit on the basis that the non-filing fees in question are "carrying charges" and should be excluded from the sales price of property which is subject to sales and use tax as set forth in §58.1-602(17). Accordingly, Taxpayer seeks full abatement of the tax, interest and penalties assessed with respect to the non-filing fees.
DETERMINATION
§58.1-602(17) of the Code of Virginia provides that the sales price for which tangible personal property is sold shall not include "finance charges, carrying charges, service charges or interest from credit extended on sales of tangible personal property under conditional sales contracts or other conditional contracts providing for deferred payments of the purchase price." Virginia Regulation 630-10-95 interprets this statute as providing an exclusion from sales price for "separately stated finance, carrying or service charges or interest directly attributable to credit extended on conditional sales contracts or other conditional deferred payment contracts (such as installment sales)." Black's Law Dictionary defines "credit service charge" as including the "premium or other charge for any guarantee or insurance protecting the seller against the buyer's default or other credit loss."
I find in this case that the non-filing fees charged by Taxpayer are subject to the exclusion provided in §58.1-602(17) of the Code of Virginia and VR 630-10-95. The non-filing fees are separately stated and can be termed service charges. Accordingly, the sales tax and interest attributable to the non-filing fees will be abated in full.
None of the penalty assessed in this audit is applicable to the non-filing fees; no penalty was assessed on the sales tax portion of the audit. Penalty was, however, applied to the untaxed purchases and fixed assets. As set forth in Virginia Regulation 630-10-80:
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- Generally...penalty will be waived on the first audit of all taxpayers. On a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances.
- Generally...penalty will be waived on the first audit of all taxpayers. On a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances.
In conclusion, the department's audit will be revised as soon as practicable to reflect the decisions reached in this letter, and a revised Notice of Assessment will be issued to the Taxpayer under separate cover.
If you have any further questions regarding the issues raised in this appeal, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner