Tax Type
Litter Tax
Retail Sales and Use Tax
Description
Dealer records; Packaging and inserts; Litter Tax
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
07-09-1990
July 9, 1990
Re: §58.1-1821 Application/Sales and Use Tax & Litter Tax
Dear ****
This will reply to your letter of May 1, 1990, in which you are seeking correction of the recent sales and use tax assessment for your client, **************** (the Taxpayer).
FACTS
The Taxpayer was audited for the period of March 1987 through December 1989. There are several areas included in the audit in which the Taxpayer takes exception. The contested areas will be listed and addressed separately below.
First Use in Virginia
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- The Taxpayer receives many of their fixed assets from major suppliers at their home office located in Virginia. These assets are stored in Virginia until they are shipped to the Taxpayer's branch offices located both within and outside the state of Virginia. The reasoning for this is that it is cost effective to ship all items to a central location. The Taxpayer contends that since the items are stored and not used in Virginia, the use tax is not applicable.
- The Taxpayer receives many of their fixed assets from major suppliers at their home office located in Virginia. These assets are stored in Virginia until they are shipped to the Taxpayer's branch offices located both within and outside the state of Virginia. The reasoning for this is that it is cost effective to ship all items to a central location. The Taxpayer contends that since the items are stored and not used in Virginia, the use tax is not applicable.
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- The Taxpayer's internal records provide a breakdown of sales price, shipping charges and taxes. However, customer invoices do not provide a breakdown and these amounts are included in a lump sum charge. The Taxpayer feels that they have acted in accordance with Virginia Regulations 630-10-24 and 630-10-30 in the fact that internal records qualify as "the record of the transaction".
Shipping and Handling Charges
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- Similar to the situation set forth above, the Taxpayer included shipping and handling charges in the total invoice charge to their customers. The Taxpayer feels that to segregate these charges would be too costly in view of the fact that the average sale is $********. The taxpayer has provided documentation which segregates the shipping and handling charges on a month by month basis for the entire audit period. Taxpayer is requesting the department's consideration of the breakdown for purposes of the audit.
- Similar to the situation set forth above, the Taxpayer included shipping and handling charges in the total invoice charge to their customers. The Taxpayer feels that to segregate these charges would be too costly in view of the fact that the average sale is $********. The taxpayer has provided documentation which segregates the shipping and handling charges on a month by month basis for the entire audit period. Taxpayer is requesting the department's consideration of the breakdown for purposes of the audit.
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- This item includes invoices, order forms, a guarantee of the product purchased, and envelopes which are shipped with the product sold to customers. The Taxpayer feels such items are exempt as packaging material and become a part of the product sold as provided under Virginia Regulation 630-10-53.
- This item includes invoices, order forms, a guarantee of the product purchased, and envelopes which are shipped with the product sold to customers. The Taxpayer feels such items are exempt as packaging material and become a part of the product sold as provided under Virginia Regulation 630-10-53.
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- The auditor assessed the litter tax for the taxable period of January, 1983 through December, 1988. It is the Taxpayer's contention that they did not become liable for the litter tax until September 1986 when they began selling a cleaning product.
- The auditor assessed the litter tax for the taxable period of January, 1983 through December, 1988. It is the Taxpayer's contention that they did not become liable for the litter tax until September 1986 when they began selling a cleaning product.
DETERMINATION
I will address each area of contention in the same order as outlined above.
First Use in Virginia
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- "Use" is defined in Virginia Code §58.1-602 as, "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." Virginia Regulation 630-10-51 addresses interstate and foreign commerce and subsection B of the regulation deals with taxable transactions in Virginia as follows:
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- The tax applies to the first use in Virginia of tangible personal property purchased elsewhere in a transaction which would have been taxed had the transaction occurred in Virginia, regardless of the fact that such property may have been, or may be used in interstate commerce, ...
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- "Use" is defined in Virginia Code §58.1-602 as, "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." Virginia Regulation 630-10-51 addresses interstate and foreign commerce and subsection B of the regulation deals with taxable transactions in Virginia as follows:
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- The fact that the expense items in question were delivered into Virginia, stored until subsequent delivery outside the state, and would have been taxed if purchased in Virginia, establishes first use in accordance with code section and regulation cited above. In addition, similar storage transactions for subsequent out-of-state usage were reviewed by the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980) and found to be taxable. As such, the purchases in question will not be removed from the audit.
- The fact that the expense items in question were delivered into Virginia, stored until subsequent delivery outside the state, and would have been taxed if purchased in Virginia, establishes first use in accordance with code section and regulation cited above. In addition, similar storage transactions for subsequent out-of-state usage were reviewed by the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980) and found to be taxable. As such, the purchases in question will not be removed from the audit.
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- Virginia Code §58.1-625 addresses collection of the sales and use tax by dealers and states, in part, "the dealer shall separately state the amount of tax and add such tax to the sales price or charge." In interpreting Code §58.1-625, Virginia Regulation 630-10-24(A) provides, "identification of the tax by a separate writing or symbol is not required provided the amount of the tax is shown as a separate item on the record of the transaction."
The Taxpayer's daily recap sheets provide a breakdown of the sales price, shipping charges and tax. However, customer invoices do not provide a similar breakdown. The additional tax assessed as a result of this practice will be abated provided the Taxpayer can reasonably demonstrate that its internal sales records coincide with the amounts charged on customer invoices. However, in the future, the tax must be separately stated on all customer invoices.
- Virginia Code §58.1-625 addresses collection of the sales and use tax by dealers and states, in part, "the dealer shall separately state the amount of tax and add such tax to the sales price or charge." In interpreting Code §58.1-625, Virginia Regulation 630-10-24(A) provides, "identification of the tax by a separate writing or symbol is not required provided the amount of the tax is shown as a separate item on the record of the transaction."
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- Virginia Code §58.1-602 defines sales price, in part, as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale." "Handling charges" are considered a service in connection with a sale and are therefore taxable.
Virginia Regulation 630-10-107 exempts from the tax separately stated transportation and delivery charges. "Transportation" and "delivery charges" are defined in the regulations as follows:-
- Charges for delivery from the seller to the purchaser, commonly known as "transportation-out," and includes postage or common carrier charges. Transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relative to purchases for resale, nor do they include handling charges. Emphasis added.
- Charges for delivery from the seller to the purchaser, commonly known as "transportation-out," and includes postage or common carrier charges. Transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relative to purchases for resale, nor do they include handling charges. Emphasis added.
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- Virginia Code §58.1-602 defines sales price, in part, as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale." "Handling charges" are considered a service in connection with a sale and are therefore taxable.
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- Virginia Regulation 630-10-53 specifically states that "the tax does apply to purchases of inserts and invoices , etc." It is clear that the inserts in question, i.e., invoices, order forms, guarantees and envelopes, do not qualify as packaging material and are therefore subject to the tax. our position is substantiated by my ruling of July 14, 1986, copy enclosed.
- Virginia Regulation 630-10-53 specifically states that "the tax does apply to purchases of inserts and invoices , etc." It is clear that the inserts in question, i.e., invoices, order forms, guarantees and envelopes, do not qualify as packaging material and are therefore subject to the tax. our position is substantiated by my ruling of July 14, 1986, copy enclosed.
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- Based on the information presented in your letter, the litter tax assessments will be revised to reflect an initial liability date of September 1986.
- Based on the information presented in your letter, the litter tax assessments will be revised to reflect an initial liability date of September 1986.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner