Tax Type
Retail Sales and Use Tax
Description
Taxpayer is eligible for a refund of erroneously collected tax
Topic
Payment and Refund
Rate of Tax
Records/Returns/Payments
Date Issued
10-21-2011
October 21, 2011
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to a discounted sales price. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer is the exclusive United States marketer for a motor vehicle corporation. The Taxpayer purchases a direct mail advertising program from a third-party vendor. The Taxpayer resells the program to its customers (independent dealerships) in Virginia that choose to participate in the program. The end products of the program are service reminders and service coupon mailers. These products are mailed by the third-party vendor directly to customers and prospective customers of the participating dealerships. The objective of the mailers is to promote the dealership service business.
When the Taxpayer bills the dealerships for the direct mail advertising program, they sales price is discounted 50 percent from the list price. The Taxpayer states it completely absorbs the discount coupon credit and does not receive reimbursement from a third-party. The Taxpayer states it has been applying the tax on the total list price, not the discounted price, when making these sales to the dealerships. The Taxpayer questions whether it should apply the tax to the total list price or the discounted price. If it is determined that the Taxpayer has been applying the tax incorrectly to the total list price, the Taxpayer requests guidance on receiving a refund for the incorrectly applied tax.
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- RULING
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Virginia Code § 58.1-602 defines sales price as:
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- The total amount for which tangible personal property or services are sold, including any services that area part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without: any deduction therefrorn on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
Virginia Code § 58.1-602 further provides, in pertinent part, that sales prices does not include "any cash discount allowed and taken ...."
Virginia Code § 58.1-625 provides, in pertinent part, "[a]ny dealer collecting the sales or use tax on transactions exempt or not taxable under this chapter shall transmit to the Tax Commissioner such erroneously or illegally collected tax unless or until he can affirmatively show that the tax has since been refunded pro the purchaser or credited to his account:.
Title 23 of the Virginia Administrative Code (VAC) 10-210-3040 provides:
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- A dealer may request a refund for taxes erroneously or illegally collected. The dealer must show that the tax erroneously or illegally collected was paid by him and not passed on to the consumer, or the tax was collected from the consumer as tax and subsequently refunded to the consumer. Refunds cannot be authorized unless the request is made within three years from the due date of the return. The amount refunded will be the net amount of state and local tax remitted to the state on the transaction(s) generating the refund. Thus, if a dealer filed a timely return and deducted dealer's discount for the period for which the refund is claimed, the amount of refund will be reduced by the dealer's discount taken ....
In this instance, because the Taxpayer is charging its customers a discounted price and absorbing the loss resulting from the discount, the Taxpayer should charge the retail sales and use tax based upon the discounted price for the program charged to its customers. Pursuant to Va. Code § 58.1-625 and Title 23 VAC 10-210-3040, the Taxpayer is eligible for a refund of erroneously collected tax, provided the Taxpayer can show that it has refunded its customers the erroneous amount of tax. The Taxpayer will need to file amended retail sales and use tax returns with the Department, and will take a deduction on the amended returns representing the erroneous amount of tax collected. Refunds can only be authorized for requests made within three years from the due date of the return.
I hope this responds to your inquiry. This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections and regulation 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 *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4524070707P
Rulings of the Tax Commissioner