Tax Type
Retail Sales and Use Tax
Description
Incoming freight charges passed on to the Taxpayer's customers
Topic
Accounting Periods and Methods
Assessment
Date Issued
08-23-2004
August 23, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period April 2000 through March 2003. I note that the assessment has been paid in full. I apologize for the delay in this response.
FACTS
The only contested issue is the assessment of incoming freight charges (freight-in) passed on to the Taxpayer's customers. Freight-in is the amount charged to the Taxpayer by its vendors when it purchases property for resale. In this case, the Taxpayer passed the freight-in charge on to its customers as a separate charge on the sales invoice but did not collect the sales tax on this separately stated freight-in charge.
DETERMINATION
Virginia Code § 58.1-609.5(3) provides that the retail sales and use tax shall not apply to transportation charges separately stated.
Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 interprets Va. Code § 58.1-609.5(3) and provides that the tax does not apply to transportation or delivery charges added to a taxable sale, provided such transportation charges are separately stated on the invoice to the customer. These charges, commonly known as "transportation-out," are charges for delivery from the seller to the purchaser. Exempt transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relating to purchases for resale.
Example 1 in the regulation addresses the distinction between "transportationout" and "transportation-in" and indicates that "transportation-in" is part of the cost of the property sold and is subject to the sales tax even if separately stated on the invoice. This concept is also addressed in Public Document (P. D.) 99-223 (8/6/99).
In regard to your previous sales tax audit, I have reviewed the prior audit documents and can find no indication that the Taxpayer was misinformed of the correct tax application. Further, the example set out in 23 VAC 10-210-6000 addresses the Taxpayer's situation and clearly distinguishes between taxable and exempt transportation charges. Based on the above, the assessment is correct. Accordingly, there is no basis to refund any portion of the tax previously paid.
The Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
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- Tax Commissioner
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- Kenneth W. Thorson
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AR/46501P
Rulings of the Tax Commissioner