Tax Type
Retail Sales and Use Tax
Description
Purchases in VA and shipped out-of-state
Topic
Accounting Periods and Methods
Appropriateness of Audit Methodology
Penalties and Interest
Date Issued
01-23-2002
January 23, 2002
Re: 58.1-1821 Application: Retail Sales and Use Tax
Dear*****
This is in reply to your letter in which you seek correction of retail sales and use tax assessments issued to ***** (the "Taxpayer") for various audit periods ending June 2000. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a retailer of fine art with galleries located throughout the United States, including Virginia. The Taxpayer contests the tax assessed on (1) the sale of artwork purchased by a customer in Virginia and shipped out-of-state, (2) interest on the late filing of sales tax collected, and (3) excess revenues from shipping charges. Each of these issues will be addressed separately below.
DETERMINATION
Virginia Purchases Shipped to Another State
In this transaction, a customer purchased artwork at one of the Taxpayer's Virginia locations. The artwork was subsequently shipped by independent carrier to the customer's home in another state. The auditor held the transaction taxable as a gift purchased in Virginia under Title 23 of The Virginia Administrative Code (VAC) 10-210-680. The Taxpayer contends that the transaction is an exempt sale in interstate commerce under Title 23 VAC 10-210-780.
Title 23 VAC 10-210-780 states that the sales and use tax does not apply to sales of tangible personal property in interstate or foreign commerce. Exempt interstate commerce includes the sale of tangible personal property delivered to the purchaser outside of the state by an independent trucker or contract carrier hired by the seller.
Based on the information provided with your correspondence, the contested sale at issue qualifies as a sale in interstate commerce and will be removed from the audit.
Customer Orders
You indicate that a customer may purchase artwork that is unfinished or not in the Taxpayer's inventory. Thus, the customer does not take the artwork at the time the order is placed. In such cases, the Taxpayer creates a customer order and collects payment, including the sales tax, from the customer. Upon completion and delivery of the artwork to the customer, the Taxpayer creates a sales receipt and remits the tax collected to the department. The Taxpayer holds the tax collected, ultimately remitting the tax when the artwork is delivered to the customer and the sales receipt is created.
The auditor assessed interest on the late filing of sales tax collected by the Taxpayer on such orders. The Taxpayer claims that the sale is taxable when the property is delivered to the customer and not when the order is placed.
Code of Virginia § 58.1-625 provides that "all sums collected by a dealer as required by this chapter shall be deemed to be held in trust for the Commonwealth." Code of Virginia § 58.1-16 provides in part that "any person responsible for collecting any tax administered by the Department ... who overcollects such tax and fails to account for and pay such overcollection to the appropriate state agency by the time his regular monthly or quarterly return is due shall be liable for the amount of such overcollection ...."
Code of Virginia § 58.1-635 provides that the interest at the prescribed rate is assessed on the tax deficiency from the due date for filing and reporting the tax deficiency and accrues until it is paid. Interest is mandatory and cannot be waived.
While I am not implying that the Taxpayer overcollected the tax in this case, the law is clear that all tax collected is held in trust for the Commonwealth and is to be remitted to the department by the time the Taxpayer's regular monthly return is due. Because the Taxpayer failed to remit the tax, the auditor was correct in assessing the interest on the contested sales in question.
Shipping Charges
The auditor held taxable the revenues generated from the transportation charges paid by customers when those charges exceeded the actual amount required for shipping. In this regard, the Taxpayer charges a set fee for the shipping of items throughout the country. The fee is designed to satisfy the average freight costs throughout the country. The Taxpayer maintains that the transportation charges are exempt, as they are separately stated on the sales invoice and represent the approximate cost of transportation of the items sold to Virginia customers.
In Public Document 93-41 (3/4/93), the department addressed a set of facts similar to the facts in this case. In that determination, the taxpayer calculated delivery charges based on a flat fee regardless of destination of the merchandise. The Tax Commissioner determined that if the taxpayer's method is designed to approximate actual shipping costs and there is no intent to generate revenues exceeding the actual amount required for shipping, then such method does not change the tax. Based on the policy set forth in Public Document 93-41, the shipping charges at issue will be removed from the audit.
Summary
The audit will be revised in accordance with this determination. The Taxpayer will receive a revised audit report and a revised bill. The assessment should be paid within 30 days from the receipt of the revised bill. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/30791T
Related Documents
Rulings of the Tax Commissioner