Tax Type
Retail Sales and Use Tax
Description
Audit sample; Services in connection with sale
Topic
Collection of Delinquent Tax
Taxability of Persons and Transactions
Date Issued
04-10-2000
April 10, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to a letter from ***** seeking correction of a retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period March 1995 through December 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a manufacturer of apparel. As a result of the department's audit, the Taxpayer was assessed tax on untaxed purchases for use in its operation. The Taxpayer takes exception to one purchase included in the audit sample. The Taxpayer maintains that this item is a nonrecurring purchase and should be removed from the audit extrapolation and taxed separately. The Taxpayer also claims that 50% of the total charge for this purchase represents nontaxable services.
DETERMINATION
Sample
Sampling is an audit technique of significant value that is widely used in the public and private sectors. The department uses sampling in sales and use tax audits where a detailed audit would not prove beneficial to either the auditor or the taxpayer. When sampling techniques are properly applied, the result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
The department will remove an item from an audit sample if it is shown that the transaction is isolated in nature and not a normal part of a taxpayer's business activity. Based on the information provided, I agree that the transaction in question meets these criteria and should be removed from the sample. The audit sample will be recomputed on this basis, and the transaction will be taxed separately in the audit.
Services in connection with the sale of tangible personal property
The Virginia retail sales tax applies to the "gross" sales price of tangible personal property when sold at retail in Virginia. Code of Virginia § 58.1-602 defines the term "sales price" to mean:
. . .the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, . . . and includes any amount for which credit is given to the purchaser, . . . without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
As so defined, sales price includes any amount charged as a markup for overhead expenses, other costs and profit in connection with the sale of tangible personal property. Accordingly, expenses and profits charged in connection with retail sales are subject to the sales tax.
In this case, the Taxpayer contracted with a vendor to provide food and services for the Taxpayer's company picnic. Based on the contract, the vendor provided tangible personal property and services for the one day event. The vendor performed service activities in direct association with the sale of tangible personal property. As such, the charge for services in connection with the sale of tangible personal property is not excluded from the definition of sales price by statute or regulation. Accordingly, the auditor correctly assessed the tax on the total sales price of the tangible personal property and services sold.
Summary
Based on the foregoing, the audit will be revised in accordance with the determination set forth herein. The Taxpayer will receive a revised audit report and a revised bill. Interest on the bill will be accrued to date of protest and should be paid within 30 days from receipt of the revised bill. If you have any questions regarding this determination, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22829T
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to a letter from ***** seeking correction of a retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period March 1995 through December 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a manufacturer of apparel. As a result of the department's audit, the Taxpayer was assessed tax on untaxed purchases for use in its operation. The Taxpayer takes exception to one purchase included in the audit sample. The Taxpayer maintains that this item is a nonrecurring purchase and should be removed from the audit extrapolation and taxed separately. The Taxpayer also claims that 50% of the total charge for this purchase represents nontaxable services.
DETERMINATION
Sample
Sampling is an audit technique of significant value that is widely used in the public and private sectors. The department uses sampling in sales and use tax audits where a detailed audit would not prove beneficial to either the auditor or the taxpayer. When sampling techniques are properly applied, the result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
The department will remove an item from an audit sample if it is shown that the transaction is isolated in nature and not a normal part of a taxpayer's business activity. Based on the information provided, I agree that the transaction in question meets these criteria and should be removed from the sample. The audit sample will be recomputed on this basis, and the transaction will be taxed separately in the audit.
Services in connection with the sale of tangible personal property
The Virginia retail sales tax applies to the "gross" sales price of tangible personal property when sold at retail in Virginia. Code of Virginia § 58.1-602 defines the term "sales price" to mean:
. . .the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, . . . and includes any amount for which credit is given to the purchaser, . . . without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
As so defined, sales price includes any amount charged as a markup for overhead expenses, other costs and profit in connection with the sale of tangible personal property. Accordingly, expenses and profits charged in connection with retail sales are subject to the sales tax.
In this case, the Taxpayer contracted with a vendor to provide food and services for the Taxpayer's company picnic. Based on the contract, the vendor provided tangible personal property and services for the one day event. The vendor performed service activities in direct association with the sale of tangible personal property. As such, the charge for services in connection with the sale of tangible personal property is not excluded from the definition of sales price by statute or regulation. Accordingly, the auditor correctly assessed the tax on the total sales price of the tangible personal property and services sold.
Summary
Based on the foregoing, the audit will be revised in accordance with the determination set forth herein. The Taxpayer will receive a revised audit report and a revised bill. Interest on the bill will be accrued to date of protest and should be paid within 30 days from receipt of the revised bill. If you have any questions regarding this determination, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22829T
Rulings of the Tax Commissioner