Tax Type
Retail Sales and Use Tax
Description
Delivery charges and packing costs; Separately stated delivery charge on total order
Topic
Basis of Tax
Date Issued
09-11-1995
September 11, 1995
Re: Request for Ruling: Retail Sales and Use Tax
Dear********************:
This will reply to your letter of July 21, 1995 in which you seek information regarding the application of sales and use tax to delivery charges in relation to your client************** (the"Taxpayer").
FACTS
The Taxpayer is an out-of-state corporation engaged in retail sales of consumer products. The Taxpayer operates retail stores in several states, including Virginia, and is a registered dealer in Virginia. In addition, the Taxpayer operates a catalog mail order department in which sales orders are received outside Virginia and merchandise is shipped, via common carrier, from a central warehouse located outside Virginia to residents located within Virginia. Based on its interpretation of Virginia Regulation (VR) 630-10-107, the Taxpayer currently does not charge Virginia purchasers sales tax on separately stated delivery charges.
Additionally, the Taxpayer has recently changed its method of calculating delivery charges. Formerly, the charge was calculated on the basis of each individual merchandise item. The charge is now based on the aggregate amount of merchandise purchased. The Taxpayer seeks confirmation that its tax treatment of deliver charges, in light of the facts provided, is consistent with VR 630-10-107.
RULING
Code of Virginia § 58.1-609.5(3) provides an exemption from the sales and use tax for transportation charges when separately stated. VR 630-10-107 further interprets the exemption and defines nontaxable transportation or delivery charges as charges for the cost of delivery of goods from the seller to the purchaser (referred to as "transportation out") and includes postage and common carrier charges. The regulation requires that these charges be separately stated on the customer's invoice in order for the exemption to apply. Exempt transportation charges do not include handling charges or charges from a manufacturer to a retailer for resale (referred to as "transportation in").
In addition, exempt shipping charges must be segregated from taxable handling charges. If these charges are combined into a single charge, although separately stated, the total amount becomes subject to the tax.
Based on the limited specific facts presented, the Taxpayer's sales tax treatment of transportation or delivery charges is consistent with the regulation. In a phone conversation with a member of the department's Tax Policy staff, you have clarified that the recent change in the Taxpayer's method of calculating delivery charges is based on a flat fee charged regardless of destination of the merchandise. If the current method is designed to approximate actual shipping costs and there is no intent to generate revenues exceeding the actual amount required for shipping, then such method does not change the application of the regulation and the delivery charges remain exempt of the tax. This issue is specifically addressed in P.D. 93-41, which is enclosed.
I have also enclosed other department rulings that further discuss the tax application to delivery charges. I hope the foregoing has responded to your inquiry and should you need further assistance, please do not hesitate to contact*****************in the Office of Tax Policy at****************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10002J
Rulings of the Tax Commissioner