Tax Type
Retail Sales and Use Tax
Description
Incentive gifts withdrawn from inventory
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
04-20-1990
April 20, 1990
Re: §58.1-1821 Application/ Sales and Use Tax
Dear********************
This will reply to your letter dated December 7, 1989 regarding your protest of the retail sales and use tax audit assessment issued on September 12, 1989 for the period August 1, 1986 through July 31, 1989.
FACTS
************ ("the taxpayer") has an incentive program based on sales volume and length of service which allows its representatives to select items from its retail merchandise or from a special premium inventory as gifts.
The taxpayer's protest arises from the assessment of tax on withdrawals from its retail inventory warehouse located in Virginia to be given to the taxpayer's sales representatives located outside of Virginia as incentive gifts. The taxpayer has been paying sales tax to the states to which such merchandise is delivered; therefore, the taxpayer believes that it has no obligation to pay Virginia tax on such withdrawals.
DETERMINATION
Donors of tangible personal property are users or consumers of that property. The tax applies to the cost price of property purchased originally for resale and later used as a gift or to purchases of property intended to be awarded as prizes (Virginia Retail Sales and Use Regulation §630-10-85).
Section 630-10-51 of the Virginia Retail Sales and Use Tax Regulations further provides that transactions become taxable in Virginia when the first use of the tangible personal property occurs in Virginia, regardless of the fact that such property may have been, or may be used in interstate commerce. The tax does not apply to sales of tangible personal property in interstate commerce; i.e., a sale in which title or possession to the property passes to the purchaser outside of Virginia and no use of the property is made within Virginia.
All retail inventory items intended to be resold or used in an exempt manner may be purchased under certificates of resale exemption. However, as specifically provided in Va. Code §58.1-623(C) and Va. Retail Sales and Use Tax Regulation §630-10-20(D), subsequent withdrawals from untaxed inventory stored within Virginia for other than an exempt use are taxable transactions. Transactions similar to those at issue here were also found taxable by the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E. 2d 413 (1980), a copy of which is enclosed.
Based on the department's long-standing policy as reflected in its regulations, as well as the Virginia Supreme Court's opinion in Miller-Morton, I find no basis for waiver of the tax assessed. However, based upon the circumstances presented in the taxpayer's letter, I do find basis for the waiver of interest. Therefore, a refund will be forthcoming.
It should also be noted that the Taxpayer in the future should be allowed a credit by other states for the Virginia tax paid on gifts distributed outside the state. Similarly, refunds may be available from such other states for transactions taxed in this audit.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner