10-202 | Virginia Tax

Tax Type

Consumer Use Tax

Retail Sales and Use Tax

Description

Consumer use tax on paint color cards/ Sales for resale exemption

Topic

Exemptions

Property Subject to Tax

Sale for Resale

Date Issued

09-01-2010

September 1, 2010

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in-which you seek correction of the retail sales and use tax assessment issued for the period April 2003 through August 2009. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is in the business of manufacturing, marketing and selling paint. The Taxpayer sells paint primarily to one retailer, which then sells paint to the general public. The Taxpayer was assessed consumer use tax on the color cards (the "cards") that it provides to the retailer. The Taxpayer states the cards are used by the retailer's customers to choose the paint color that the customers would like to purchase. The Taxpayer maintains that the retailer uses the cards to mix the paint to the desired color.

The Taxpayer is contesting the assessment of the consumer use tax on the cards. The Taxpayer maintains that it makes no use of the cards in Virginia. In the alternative, the Taxpayer contends that the sale of the cards to the retailer is for resale, pursuant to a resale exemption certificate and not subject to the tax. The Taxpayer also contends the sales at issue are subject to the interstate commerce exemption, and the assessment violates the Due Process and Commerce Clauses of the U.S. Constitution, as well as the Equal Protection Clauses of the U.S. Constitution and Virginia Constitution.

DETERMINATION

The Taxpayer contends that the purchase of the cards is not subject to the Virginia consumer use tax because it does not make use of the cards in Virginia. The Taxpayer states the cards are shipped, via common carrier, directly to the retailer's location in Virginia. The Taxpayer maintains that none of its Virginia sales representatives use the cards in 'Virginia. The Taxpayer relies on Public Document (P.D.) 94-278 (9/16/94) and P.D. 94-266 (8/26/94) to support its contention.

Additional information provided by the Taxpayer indicates the cards are purchased from a third party vendor located outside Virginia. The cards are bundled with the paint products outside Virginia, resold to the retailer and shipped to the retailer's locations as one unit. The Taxpayer states the cards are never shipped to the retailer independent of the paint products. The accompanying invoice for the bundle of products includes a line item for the cards, but the charge listed for the cards is always zero because the cost of the cards is incorporated in the price charged to the retailer for each gallon of paint.

The Taxpayer further provides that the paint products and the cards are delivered to the receiving dock at the retailer's location by common carrier. The retailer's employees unpack the paint products and the cards, and place the paint on the shelves and the cards on the display racks. Occasionally, a ***** representative will visit the retailer's location to ensure that the retailer is satisfied with the service and shipments being provided. While at the retail store, the Taxpayer's representative may tidy the paint display, dust the paint cards and replenish the cards in the racks. However, the Taxpayer maintains these activities are done as a courtesy to the retailer and are not contractually required.

Virginia Code § 58.1-602 defines use, in pertinent part, as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business."

The facts in P.D. 94-278 and P.D. 94-266 are similar to those in this case. The taxpayers in these public documents were engaged in the manufacture, distribution and marketing of cosmetics, and were both domiciled outside Virginia. The taxpayers provided department stores with certain tangible personal property that the department stores could use to assist in making sales of the cosmetics to their customers. Additionally, both taxpayers maintained a sales force located in Virginia that worked to promote the taxpayers' cosmetics. Based upon the information provided, it was determined that the taxpayers did not make any taxable use of the contested tangible personal property in Virginia. The activities provided by the taxpayers' sales force were insufficient to impose the use tax on the contested tangible personal property. Accordingly, the taxpayers were not liable for the consumer use tax assessed on the contested items in the audit.

Based on Va. Code § 58.1-602 and the public documents cited, the Taxpayer in this case does not make a taxable use of the cards at issue in Virginia. Based on information provided by the Taxpayer, its representatives are not responsible for stocking the retailer's display racks with the cards. Ultimately, this responsibility rests with the retailer. Those instances in which the Taxpayer's representatives restock the display racks do not amount to sufficient use of the cards at issue to warrant an imposition of the consumer use tax. Accordingly, the consumer use tax assessed in the audit with respect to these cards will be removed.

The assessment will be revised in accordance with this determination. Once the revisions are complete, a revised bill, with interest accrued to date, will be mailed to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit your payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.

The Code of Virginia section and public documents 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 response, you may contact ***** in the Department's Office of Tax Policy, Appeals ,and Rulings, at *****.

- - - - Sincerely,

- - - - Craig M. Burns
        Acting Tax Commissioner

AR/1-4186775582.P

Rulings of the Tax Commissioner