Tax Type
Retail Sales and Use Tax
Description
S&H charges; Food Tax Reduction Program; Prepackaged frozen foods
Topic
Rate of Tax
Date Issued
03-14-2001
March 14, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a ruling on behalf of **** (the "Taxpayer"), regarding the Food Tax Reduction Program and the application of the sales tax to shipping and handling charges.
FACTS
The Taxpayer is an out-of-state vendor of prepackaged frozen food that is shipped to customers in Virginia. The Taxpayer currently charges the reduced sales tax rate of 4% on its shipments of food into Virginia. The Taxpayer includes a combined shipping and handling charge on its invoices and questions whether the accompanying charges are subject to the reduced sales tax rate.
RULING
Generally, shipping, freight, transportation, or delivery charges that are separately stated on an invoice are exempt under Code of Virginia § 58.1-609.5(3). Handling charges are taxable as services in connection with the sale of tangible personal property, in accordance with the definition of "sales price" under Code of Virginia § 58.1-602. This section defines "sales price" as the "total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . ." The combining of the taxable handling charge and the exempt transportation charge into a single charge is taxable and subject to the sales tax at the rate of 4.5%.
Under the Food Tax Reduction Program, Virginia currently applies a reduced sales tax rate of 4% to the gross sales price of food for home consumption by humans, as defined by the federal food stamp program. Combined shipping and handling charges invoiced in connection with the sale of food that qualifies for the reduced sales tax would be considered a part of the sale of such food and included in the sales price as defined above. Because the gross sales price of the food is subject to the reduced rate, the accompanying combined shipping and handling charges would also be subject to the reduced tax rate. However, if the invoice includes charges for non-qualifying food items or other tangible personal property subject to the 4.5% sales tax rate, the combined shipping and handling charges would be subject to the full 4.5% sales tax rate.
The Taxpayer is advised that the next level of the sales tax reduction on food for home consumption, scheduled for April 1, 2001, will not take effect. The reduced sales tax rate will remain at its current level of 4%. The next time a rate reduction could occur is April 1, 2002, if General Fund revenues for fiscal year 2001 exceed the revenue forecast by at least one percent.
I hope the foregoing has responded to your inquiry. If you have additional questions, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31670J
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a ruling on behalf of **** (the "Taxpayer"), regarding the Food Tax Reduction Program and the application of the sales tax to shipping and handling charges.
FACTS
The Taxpayer is an out-of-state vendor of prepackaged frozen food that is shipped to customers in Virginia. The Taxpayer currently charges the reduced sales tax rate of 4% on its shipments of food into Virginia. The Taxpayer includes a combined shipping and handling charge on its invoices and questions whether the accompanying charges are subject to the reduced sales tax rate.
RULING
Generally, shipping, freight, transportation, or delivery charges that are separately stated on an invoice are exempt under Code of Virginia § 58.1-609.5(3). Handling charges are taxable as services in connection with the sale of tangible personal property, in accordance with the definition of "sales price" under Code of Virginia § 58.1-602. This section defines "sales price" as the "total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . ." The combining of the taxable handling charge and the exempt transportation charge into a single charge is taxable and subject to the sales tax at the rate of 4.5%.
Under the Food Tax Reduction Program, Virginia currently applies a reduced sales tax rate of 4% to the gross sales price of food for home consumption by humans, as defined by the federal food stamp program. Combined shipping and handling charges invoiced in connection with the sale of food that qualifies for the reduced sales tax would be considered a part of the sale of such food and included in the sales price as defined above. Because the gross sales price of the food is subject to the reduced rate, the accompanying combined shipping and handling charges would also be subject to the reduced tax rate. However, if the invoice includes charges for non-qualifying food items or other tangible personal property subject to the 4.5% sales tax rate, the combined shipping and handling charges would be subject to the full 4.5% sales tax rate.
The Taxpayer is advised that the next level of the sales tax reduction on food for home consumption, scheduled for April 1, 2001, will not take effect. The reduced sales tax rate will remain at its current level of 4%. The next time a rate reduction could occur is April 1, 2002, if General Fund revenues for fiscal year 2001 exceed the revenue forecast by at least one percent.
I hope the foregoing has responded to your inquiry. If you have additional questions, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31670J
Rulings of the Tax Commissioner