Tax Type
Retail Sales and Use Tax
Description
Tax assessed on three types of charges: fuel surcharge, offloading, and demurrage
Topic
Appropriateness of Audit Methodology
Exemptions
Taxable Transactions
Date Issued
04-30-2008
April 30, 2008
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter requesting correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period January 2003 through December 2005. I note that the Taxpayer has paid the assessment. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a precast concrete manufacturer. An audit resulted in the assessment of tax on sales and purchases of tangible personal property.
The Taxpayer contests the tax assessed on three types of charges: fuel surcharge, offloading, and demurrage. The Taxpayer maintains that these separately stated charges are part of the separately stated transportation charge and should, therefore, be exempt pursuant to Virginia Code § 58.1-609.5 (3).
DETERMINATION
The retail sales and use tax is imposed on the "sales price" of tangible personal property. The term "sales price" means the total cost for which tangible personal property is sold and includes any labor or services in connection with the sale.
Virginia Code § 58.1-609.5 (3) provides an exemption from the definition of "sales price" for separately stated transportation charges. This exemption is interpreted by Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 A, which states:
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- 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. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to the tax.
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- Section B of the above regulation further provides the following:
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- As used in this section the terms `transportation' and 'delivery charges' mean charges for delivery from the seller to the purchaser, commonly known as 'transportation-out,' and include postage and common carrier charges. Transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relative to purchases for resale, nor do they include handling charges.
Based on the cited statute and regulation, I will address the issues raised in your letter.
Fuel surcharges
Fuel surcharges are made to account for the high cost of fuel incurred while delivering the product and is calculated based on a percentage of the freight charge. The percentage is determined using an index based on the price of fuel from a U.S. Department of Energy web site.
These fuel surcharges supplement the customary freight charge. As such, they represent an additional charge for transporting the product to the customer. Based on the facts presented, these separately stated fuel surcharges are exempt from the tax. Accordingly, the fuel surcharges will be removed from the audit.
Offloading
Offloading charges are for the removal of the product from the Taxpayer's trucks at the customer job site. Offloading requires the use of a crane or forklift. The Taxpayer maintains that the product is not actually delivered until it is offloaded.
The above-cited regulation establishes that handling charges are not an element of exempt transportation. In Public Document 87-98 (3/27/87), the Department classified loading charges as handling charges on the basis that loading is an activity separate from the actual transportation of the property to the purchaser. In similar manner, offloading or unloading charges are taxable handling charges.
Demurrage
The demurrage charges at issue are for the driver's wait time when the driver has reached the delivery destination but offloading is delayed by the customer. As previously determined, charges for offloading are deemed taxable handling charges. As such, the demurrage charges associated with the offloading activity are taxable.
CONCLUSION
A refund of the tax and interest paid on the fuel surcharges will be issued in accordance with this determination. Such overpayment will be refunded to the Taxpayer along with interest pursuant to Va. Code § 58.1-1833.
The Code of Virginia section, regulation and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1048631554.R
Rulings of the Tax Commissioner