Tax Type
Retail Sales and Use Tax
Description
Commission paid to the college for sales of class rings, photographs, etc.;
Topic
Taxability of Persons and Transactions
Date Issued
05-10-1988
May 10, 1988
Re: Ruling Request/ Sales and Use Tax
Dear****************
This will reply to your letter of August 12, 1987 on behalf of********** (taxpayer), seeking a ruling on the scope of the recently expanded exemption from the sales and use tax for sales of class rings, school photographs, and similar items from which a nonprofit elementary or secondary school receives a commission. This also has reference to a sample agreement and pre-order planning form, recently remitted to the department's Tax Policy Division by one of the taxpayer's sales representatives. We apologize for the delay in providing you with this response.
FACTS
Specifically, you ask whether this exemption also applies to sales by the taxpayer of class rings, school photographs, etc., when a commission is paid to colleges or universities.
Furthermore, one of the taxpayer's sales representatives based in Virginia has asked whether the exemption would still apply if, instead of receiving a cash commission in connection with class ring sales, a nonprofit elementary or secondary school elected to receive a noncash commission in the form of merchandise, such as pins, medallions or similar items.
RULING
Effective July 1, 1987, but retroactive to July 1, 1986, §58.1-608(63) of the Virginia Code provides an exemption from the sales and use tax for "[t]angible personal property purchased for use, consumption, or sale at retail by an elementary or secondary school conducted not for profit, or Parent Teacher Association or other group associated with [such a school], for use in fund raising activities, the net proceeds (gross receipts less direct expenses) of which are contributed directly to the school or used to purchase certified school equipment..." In addition, the last sentence of this section provides that the tax shall not apply to sales of "class rings, school photographs, and other fund-raising programs from which an elementary or secondary school conducted not for profit receives a commission or the net proceeds after the payment of vendors and other direct expenses." (Emphasis added)
Given the specific language of the exemption quoted above, and the rule of strict construction of all exempting statutes upheld in the case of Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E. 2d 619 (1973), I find no basis for extending the exemption to sales of class rings, school photographs, etc., from which colleges or universities receive a commission.
With regard to the second question posed above, the term "commission" is nowhere defined in the sales and use tax law or regulations. Therefore, this term must be given its commonly understood meaning as any "fee paid to an agent or employee for transacting a piece-of business or performing a service." Webster's New Collegiate Dictionary, 1979 edition.
Neither the statutory language nor the dictionary definition quoted above- limit the meaning of the term "commission" to the payment of a fee in the form of money. Accordingly, I find basis for concluding that sales of class rings, school photographs, etc., from which a nonprofit elementary or secondary school receives a commission in cash or in the form of merchandise, such as medallions and pins, qualifies for this exemption, provided the taxpayer's invoices to students clearly reference the payment of the commission to the school. In addition, the agreements entered into by the taxpayer and the schools, should clearly describe the terms of the commission being paid, including the value of any merchandise provided in lieu of or in addition to a cash commission.
I hope that the foregoing has responded to your questions, but let me know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner