Tax Type
Retail Sales and Use Tax
Description
Common carriers; Computerized package handling and sorting system
Topic
Taxability of Persons and Transactions
Date Issued
03-27-1990
March 27, 1990
Re: §58.1-1821 Application/Sales and Use Tax
Dear*****************
This will reply to your letter of November 22, 1989 in which you are seeking correction of a sales and use tax assessment for the period of July 1987 through January 1989.
FACTS
**********(the Taxpayer), a common carrier, has installed a computerized package handling and sorting system at each of its five Virginia locations. The purpose of the system is to scan, weigh and key (SWAK) all small packages. The system scans a bar code label on the package to establish a computer record of the package, weighs the package to establish cost factors for billing purposes, and finally keys the zip code which automatically directs each package to the proper bin for shipment.
In a recent audit, the department held the entire SWAK system at each location taxable. The Taxpayer feels the system is an integrated part of the conveyor system and therefore exempt from the tax. The Taxpayer acknowledges that the system is used in the tracing and billing functions of their operation, but these functions are incidental to the main conveyance function of the system.
DETERMINATION
Virginia Code §58.1-608(3)(c) extends a sales and use tax exemption to tangible personal property for use or consumption by a common carrier directly in the rendition of its public service. §630-10-24.3 of the Virginia Retail Sales and Use Tax Regulations (copy enclosed) addresses common carriers and groups the four major functions of a common carrier as administration, maintenance/repair, transport, and storage or temporary deposit.
Subsection A(2)(a) of this regulation addresses the administration function and states the following:
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- Administration functions include billing, collecting, soliciting, purchasing, record keeping and employee comfort, convenience or pleasure. All tangible personal property used in administrative functions is subject to the tax.
- Administration functions include billing, collecting, soliciting, purchasing, record keeping and employee comfort, convenience or pleasure. All tangible personal property used in administrative functions is subject to the tax.
It is apparent from the information you have provided that the SWAK system used by the Taxpayer performs both taxable and exempt functions. In such cases, Subsection C of the regulations provides that "the tax due on items is prorated between the percentage of time the property is used in a taxable manner and the percentage of time used in an exempt manner."
In view of the fact that it has been mutually agreed to by both the department and the Taxpayer that the SWAK system is used in an exempt/taxable ratio of 75%/25% respectively, the audit will be adjusted accordingly.
If you should have any further questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner