Tax Type
Retail Sales and Use Tax
Description
Manufacturer's credit; Processing fees for installment sales
Topic
Computation of Tax
Exemptions
Property Subject to Tax
Date Issued
10-06-2000
October 6, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to * * * (the "Taxpayer"), for the period June 1996 through February 1999.
FACTS
The Taxpayer is a retailer of agricultural equipment and supplies. The department's audit disclosed charges for sales processing fees associated with sales of tangible personal property, and manufacturers' discounts, which were not subjected to the retail sales tax. The Taxpayer disagrees with the department's assessment and requests that the audit be revised to remove the measure representing these issues.
DETERMINATION
Processing Fees
The processing fees at issue are charges initiated by the unrelated finance company which the Taxpayer utilizes. While the Taxpayer handles the installment contract for the finance company, the processing fees are not a part of the Taxpayer's charges for the sale of the equipment. Accordingly, as the charges are not rendered in connection with the "sale" of tangible personal property, the department's audit will be adjusted to remove the measure representing these fees.
Manufacturer's Discounts
Code of Virginia § 58.1-603 imposes the sales tax upon the "sales price" of tangible personal property sold in the state. "Sales price" is defined in § 58.1-602 as ". . . the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . ." (Emphasis added). The effect of these statutes is to ensure that the tax is collected on the entire consideration received, and make clear that the consideration includes any charges for related services.
Title 23 of the Virginia Administrative Code 10-210-430(A) discusses the application of sales tax to manufacturers' coupons and states that the value of a manufacturer's coupon is included in the sales price of the merchandise. Therefore, the sales tax is computed on the full price of the item, and credit is then given to the customer for the value of the manufacturer's coupon. In contrast, the value of retailers' coupons is not included in the sales price of merchandise. Retailers' coupons are treated as advertisements of price discounts, and the sales tax is computed on the price of the item after deducting the discount.
In the instant case, the manufacturer applies an open credit to the Taxpayer's account when the Taxpayer sells equipment and furnishes the manufacturer with an invoice showing that the discount was given to the customer. Accordingly, as the Taxpayer is receiving full consideration for the price of the equipment, the discount is properly regarded as a manufacturer's discount, and the tax is to be computed on the price of the equipment without discount. I have enclosed copies of two prior decisions related to this issue, which reflect longstanding department policy.
Based on the foregoing, the department's audit has been revised to exclude the processing fees from the assessment. The Taxpayer should return its payment for the balance of the revised assessment totaling * * * to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will accrue on the balance due from the original date of assessment. If you should have any questions regarding this matter, please contact * * * of the * * * department's Office of Tax Policy at * * *
Danny M. Payne
Tax Commissioner
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to * * * (the "Taxpayer"), for the period June 1996 through February 1999.
FACTS
The Taxpayer is a retailer of agricultural equipment and supplies. The department's audit disclosed charges for sales processing fees associated with sales of tangible personal property, and manufacturers' discounts, which were not subjected to the retail sales tax. The Taxpayer disagrees with the department's assessment and requests that the audit be revised to remove the measure representing these issues.
DETERMINATION
Processing Fees
The processing fees at issue are charges initiated by the unrelated finance company which the Taxpayer utilizes. While the Taxpayer handles the installment contract for the finance company, the processing fees are not a part of the Taxpayer's charges for the sale of the equipment. Accordingly, as the charges are not rendered in connection with the "sale" of tangible personal property, the department's audit will be adjusted to remove the measure representing these fees.
Manufacturer's Discounts
Code of Virginia § 58.1-603 imposes the sales tax upon the "sales price" of tangible personal property sold in the state. "Sales price" is defined in § 58.1-602 as ". . . the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . ." (Emphasis added). The effect of these statutes is to ensure that the tax is collected on the entire consideration received, and make clear that the consideration includes any charges for related services.
Title 23 of the Virginia Administrative Code 10-210-430(A) discusses the application of sales tax to manufacturers' coupons and states that the value of a manufacturer's coupon is included in the sales price of the merchandise. Therefore, the sales tax is computed on the full price of the item, and credit is then given to the customer for the value of the manufacturer's coupon. In contrast, the value of retailers' coupons is not included in the sales price of merchandise. Retailers' coupons are treated as advertisements of price discounts, and the sales tax is computed on the price of the item after deducting the discount.
In the instant case, the manufacturer applies an open credit to the Taxpayer's account when the Taxpayer sells equipment and furnishes the manufacturer with an invoice showing that the discount was given to the customer. Accordingly, as the Taxpayer is receiving full consideration for the price of the equipment, the discount is properly regarded as a manufacturer's discount, and the tax is to be computed on the price of the equipment without discount. I have enclosed copies of two prior decisions related to this issue, which reflect longstanding department policy.
Based on the foregoing, the department's audit has been revised to exclude the processing fees from the assessment. The Taxpayer should return its payment for the balance of the revised assessment totaling * * * to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will accrue on the balance due from the original date of assessment. If you should have any questions regarding this matter, please contact * * * of the * * * department's Office of Tax Policy at * * *
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner