Tax Type
Retail Sales and Use Tax
Description
Sales Tax Rate: Are Packaging and Handling Charges Taxable
Topic
Basis of Tax
Subtractions and Exclusions
Date Issued
08-06-2001
August 6, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter of April 18, 2001, in which you seek correction of the sales and use tax assessed to ***** (the "Taxpayer"), for the period December 1997 through September 2000.
FACTS
The Taxpayer is a multi-level marketing firm that sells nutritional and health care products through a network of distributors located in Virginia, the United States, and worldwide. The Taxpayer collects and remits the sales tax on behalf of its distributors who resell the products to their customers in Virginia. The Taxpayer collects the tax on the suggested retail selling price of the products sold to the distributors without deduction for products purchased for personal consumption or for discounts given to customers by the distributors.
The Taxpayer was assessed tax on combined packaging and handling charges in connection with the sale of products to the distributors. The Taxpayer disputes the tax and maintains that the packaging and handling charges are not taxable as part of the sales price of the products sold to the distributors. In addition, the Taxpayer disputes the validity of the taxable measure used in the audit.
DETERMINATION
Packaging and Handling Charges
The department has previously addressed the issue of handling charges in connection with the sale of products by the Taxpayer. Public Document (P.D.) 97-471 (12/5/97) and P.D. 98-122 (7/27/98). As provided in the rulings, handling activities performed in connection with the processing of sales orders of the distributors are considered services in connection with a sale. See Code of Virginia § 58.1-602, definition of "sales price." Title 23 of the Virginia Administrative Code (VAC) 10-210-4000 addresses the exclusions from the calculation of the sales price. Charges for handling activities are not excluded from the definition of sales price by statute or regulation. The charges, therefore, must be taxed as part of the sales price of tangible personal property, or in this case, the suggested retail selling price of the products sold to the distributors.
The department's policy with respect to handling charges is well established and longstanding. As such, the tax was properly assessed on the combined packaging and handling charges consistent with the prior determinations issued to the Taxpayer.
Audit Measure
You take exception to the taxable measure used in the audit. It is my understanding that the auditor has contacted you and a meeting has been scheduled to resolve the issues raised in your letter.
Sales Tax Collection Agreement
Our records indicate that the department has not received a completed and signed sales tax collection agreement from the Taxpayer as requested. I am enclosing a copy of the agreement and ask that you complete and return it within 30 days to ***** in the department's Office of Tax Policy at P.O. Box 1880, Richmond, Virginia 23218-1880.
If you have questions concerning the audit issues, please contact ***** at ****** . Questions concerning the policy set out in this letter should be directed ****** to ******* at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/33945J
Rulings of the Tax Commissioner