Tax Type
Retail Sales and Use Tax
Description
Tax on sale of class rings, school photographs, and other fund-raising programs...
Topic
Exemptions
Property Subject to Tax
Date Issued
09-16-2004
September 16, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of the Department's retail sales and use tax audit assessment issued to ********** (the "Taxpayer") for the period April 1999 through August 2001. I apologize for the delay in the Department's response.
FACTS
The Taxpayer sells class rings, graduation gowns, yearbooks and other similar items to students attending schools throughout Virginia. The Department's audit held taxable certain sales of class rings. The Taxpayer objects to the assessment of tax on sales of class rings for which it paid a commission to the school, citing the exemption in Va. Code § 58.1-609.4(8) for school fund-raising activities.
DETERMINATION
Virginia Code § 58.1-609.4(8) states, in pertinent part, "the tax shall not apply to the sale of class rings, school photographs, and other fund-raising programs from which a nonprofit elementary or secondary school receives a commission or the net proceeds after the payment of vendors and other direct expenses."
In this case, the auditor disallowed the exemption in Va. Code § 58.1-609.4(8) on certain sales of class rings because the commissions were not paid to the schools before the start of the school year subsequent to the school year in which the class rings were ordered or sold. In other words, the auditor determined commissions were not paid to the schools in a timely manner; therefore, the exemption did not apply to such sales. The Taxpayer claims that, because of its sales volume, it takes some time for the commissions to be calculated and paid.
The exemption language in Va. Code § 58.1-609.4(8) does not include a requirement that the commission or net proceeds payments must be made at any particular time after the sales in order to qualify for exemption. Nonetheless, the statute obviously carries an implied condition of reasonableness on the time by which the commission must be paid. After all, the purpose of the exemption is to benefit the students and the schools, not the Taxpayer. The Taxpayer cannot, at its own discretion, arbitrarily withhold payment of the commission or net proceeds for an indeterminate period of time and expect the transactions to qualify for the exemption. If, at the time of the audit, the commissions or net proceeds have not been paid to the schools, the Taxpayer fails to qualify for the exemption and it is entirely appropriate for the auditor to issue an assessment.
Therefore, based on the information presented and upon verification by the auditor that the Taxpayer has paid a commission or the net proceeds to such schools after payment to vendors or other direct expenses, the audit will be adjusted to remove the associated sales.
If you should have any questions concerning this determination, please contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/44284Q
Rulings of the Tax Commissioner