Tax Type
Retail Sales and Use Tax
Description
Dealer offers a discount, reduction or eradication of the sales tax as incentive
Topic
Collection of Tax
Prohibited Activity
Date Issued
08-03-2007
August 3, 2007
Dear *****:
Thank you for your recent comments concerning Tax Bulletin 07-5, issued on April 9, 2007. You expressed concern that one provision in the bulletin applies the provisions of Va. Code § 58.1-626 too broadly. You have asked that a follow-up Tax Bulletin be released, which clarifies the proper policy with respect to the prohibition on dealer absorption.
As you know, Tax Bulletin 07-5 provides guidance concerning Virginia's statutory prohibition against advertisements for the absorption of sales tax. Va. Code § 58.1-626 prohibits any person from "advertising or holding out to the public, directly or indirectly, that he will absorb all or any part of the sales or use tax, or that he will relieve the purchaser, consumer, or lessee of the payment of all or any part of such tax." In interpreting this provision, one portion of the Tax Bulletin reads as follows: "As Virginia Code § 58.1-626 prohibits any person from advertising indirectly an intention to absorb all or any part of the sales or use tax, any promotion that offers to reduce the sales price of an item and mentions the sales tax in connection with that reduction will be deemed an indirect attempt to circumvent Virginia Code § 58.1-626. Accordingly, such an advertisement will be deemed to violate the provisions against dealer absorption." (emphasis added). You are concerned that this provision is overly broad, and thus could be interpreted to include certain advertisements that mention the sales tax in their discount offers, but are not intended to provide an incentive for avoidance of the retail sales and use tax. The example below presents such a situation:
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- Example: A furniture store distributes circulars offering a discount of 5% on all mattresses. The advertisement provides as follows: All items purchased pursuant to this sale will still be subject to the 5% sales tax."
This example advertises a discount to its customers, and mentions the sales tax in connection with the discount, thus, you believe it could be interpreted as a violation of Va. Code § 58.1-626, based on the language contained in the Tax Bulletin. You believe such an interpretation would be an incorrect result.
We recognize that the language in the Tax Bulletin could be construed to prohibit advertisements like that provided in the example above, and agree that this interpretation would incorrectly interpret Va. Code § 58.1-626. We assure you that TAX did not intend this result when it drafted Tax Bulletin 07-5. Our intention, in drafting this Tax Bulletin, was to address situations in which a dealer offers a discount, and in connection therewith, offers a reduction or eradication of the sales tax as incentive for the purchase. Advertisements for discounts in which the only time the sales tax is mentioned is to assure customers that the sales tax is still applicable do not violate Va. Code § 58.1-626. Although that particular statement of the Tax Bulletin was overly broad, TAX will not interpret Virginia's dealer absorption prohibition to apply to every advertisement that offers a discount and mentions the sales tax in connection with such a discount.
Thank you for bringing this matter to our attention. We hope that this letter will alleviate your concern that the provisions of Va. Code § 58.1-626 will be broadly applied to all discount advertisements that mention the sales tax. If you have additional concerns, please do not hesitate to voice them to me.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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Rulings of the Tax Commissioner