Tax Type
Retail Sales and Use Tax
Description
Delivery charges and packing costs; Charges for delivery to vendor for further processing
Topic
Taxability of Persons and Transactions
Date Issued
05-16-1996
May 16, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letter of December 19, 1995, seeking correction of the recent sales and use tax audit assessment issued to ***** (the Taxpayer).
FACTS
The Taxpayer is an advertising specialty business which sells promotional materials (e.g., items with company logos on them). As the Taxpayer does not maintain an inventory of such items, the Taxpayer orders plain items (e.g., t-shirts, mugs, etc.) from manufacturers and directs them to send the items to a printer or other vendor who affixes a company's logo on these items. Such vendor sends the finished items directly to the Taxpayer's Virginia customer. The Taxpayer is billed by the manufacturers, printers or other vendors for the products and logos purchased, plus shipping costs, and pays for these purchases out of its own funds. The Taxpayer in turn bills its customers for the finished products, separately stated transportation charges, and sales tax.
An audit for the period July 1992 through June 1995 resulted in an assessment of sales tax on charges made by the Taxpayer to its customers to recover the cost of transporting products from manufacturers to other vendors who perform further manufacturing or processing of the products before they are ultimately shipped to the Taxpayer's customers. The Taxpayer maintains, however, that these contested charges constitute charges for transportation of products to the purchaser and should therefore be considered exempt "transportation-out" charges as set out in Virginia Regulation (VR) 630-10-107. Since none of the products ordered by the Taxpayer from its suppliers are shipped directly to the Taxpayer, the Taxpayer maintains that these charges do not constitute taxable "transportation-in" charges. The Taxpayer also maintains that it is not a retailer or re-seller.
DETERMINATION
Retailer versus Purchasing Agent
The Taxpayer has not presented any evidence to indicate that it was contractually engaged as a purchasing agent for any of its customers; i.e., that an agent and principal relationship exists. It is the department's understanding that the Taxpayer's suppliers directly invoice the Taxpayer and that the Taxpayer uses its own funds to pay for purchases of promotional items ordered by its customers. As such, the credit of its customers is not bound directly in the purchases made by the Taxpayer. Based on these practices, it would appear that the Taxpayer does not engage as a purchasing agent for its customers.
Rather, it is apparent from the facts presented that the Taxpayer is engaged in making retail sales of tangible personal property. Code of Virginia § 58.1-602 defines "retail sale" as "a sale to any person for any purpose other than for resale in form of tangible personal property or services taxable under this chapter." Although the Taxpayer does not maintain an inventory of goods sold, the Taxpayer is regularly buying goods for resale to the ultimate consumer (i.e., making "retail sales"). As such, the Taxpayer is a retailer of goods and therefore required to collect the sales tax on all of its retail sales of tangible personal property, unless it has received a certificate of exemption from its customers to prove that their purchase is not subject to taxation.
Transportation Charges
Code of Virginia § 58.1-609.5(3) provides an exemption from the sales and use tax for transportation charges when separately stated. Interpreting the exemption, VR 630-10-107 defines nontaxable transportation or delivery charges as those separately stated 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. Exempt transportation charges do not include handling charges or charges from a manufacturer to a retailer for resale (referred to as "transportation-in"). It has also been the department's long-standing policy to exempt charges for transportation of products from a manufacturer directly to a retailer's customer provided the charge represents the actual cost of delivery, is not marked up or combined with handling or other taxable charges, and is separately stated on retailer's invoice to its customer.
As such, the transportation exemption is restricted to those charges for transporting or delivering tangible personal property from the retailer, or the manufacturer or vendor acting on the retailer's behalf, to the purchaser and thus does not extend to any other type of transportation or delivery charges. Since the transportation charges assessed in this case do not constitute the delivery of products directly to the purchaser, but constitute delivery of the product to another vendor for further processing or manufacture, the charges assessed in this case do not qualify for the transportation exemption regardless of whether such charges are separately stated or not.
Based on all of the foregoing, I find that the assessment of tax on transportation charges in this case is proper. Since the assessment has not been paid, the Taxpayer will soon receive an updated Notice of Assessment. To avoid further interest charges, the outstanding liability should be paid within the next 30 days.
If you have any questions about this matter, please contact**** of my Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10750R
Rulings of the Tax Commissioner