Document Number
Tax Type
Retail Sales and Use Tax
Assessment of tax on combined shipping and handling charges
Appropriateness of Audit Methodology
Collection of Tax
Date Issued

July 6, 2011

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

Dear *****:

This reply is in response to your letter in which you request correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period April 2007 through July 2010. I apologize for the delay in responding to your appeal.


The Taxpayer manufactures and distributes pipes. An audit by the Department resulted in the assessment of tax on combined shipping and handling charges. The Taxpayer contends that the charges are mislabeled on the invoices and are for shipping only.


Virginia Code § 58.1-609.5 3 provides an exemption for separately stated transportation charges. Title 23 of the Virginia Administrative Code 10-210-6000 defines transportation charges as those charges for delivery from the seller to the purchaser, also described as "transportation-out," including postage or common carrier charges. The regulation further states that transportation charges do not include transportation charges from a manufacturer to a retailer's place of business for resale, nor do they include handling charges.

Public Document (P.D.) 96-119 (6/4/96) discusses a taxpayer that was assessed use tax on combined freight and handling charges. The Taxpayer presented letters from its suppliers that segregated the shipping charges. Although the Tax Commissioner confirmed that the combined charge of exempt shipping and taxable handling rendered the entire charge taxable, the Department agreed to remove the shipping portion from the assessed charges based on vendor statements. Also see P.D. 08-74 (6/16/08).

In P.D. 97-79 (2/18/97), a taxpayer was assessed tax on lump-sum shipping and handling charges. The determination concludes that although the Taxpayer invoiced the charges as "shipping and handling," the amounts were exempt freight and insurance charges. The Tax Commissioner agreed to remove the "shipping and handling" charges from the audit.

The Taxpayer argues that the invoiced shipping and handling charges are for shipping services only that are provided by third party common carriers. Additionally, the Taxpayer states that any amount it charges above its shipping costs are not for handling, as those costs are included in the sales price of the product. However, the Taxpayer presents no documentation to support its position.

Notwithstanding the foregoing, in accordance with the cited public documents and because this matter involves a first audit of the Taxpayer, I will allow the Taxpayer one final opportunity to provide documentation supporting its position. The audit will be returned to the audit staff, who will contact the Taxpayer to schedule a mutually convenient time to review the requested documentation. If no additional documentation is provided within 30 days of the date the audit staff contacts the Taxpayer, the assessment will be upheld as issued. In that event, an updated bill, with interest accrued to date, will be mailed to the Taxpayer and collection action will resume.

The Code of Virginia, regulation and public documents cited are available on-line at in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,

                • Craig M. Burns
                  Tax Commissioner


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46