Document Number
12-123
Tax Type
Retail Sales and Use Tax
Description
Motor vehicle sale to out of state customer is a sale in interstate commerce and qualifies exemption
Topic
Exemptions
Property Subject to Tax
Records/Returns/Payments
Taxable Transactions
Date Issued
07-30-2012

July 30, 2012



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

Dear *****:

This will reply to your letter in which you seek the correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period April 2008 through March 2011.

FACTS


The Taxpayer is a Virginia business that manufactures and sells specialty motor vehicles. The Department audited and assessed the Taxpayer sales tax on the untaxed sale of a motor vehicle to an out-of-state customer. The motor vehicle was picked up at the Taxpayer's Virginia location and delivered to the customer's out-of-state location by a motor vehicle transport company. The auditor held the sale taxable on the basis that the customer took constructive possession of the motor vehicle in Virginia. The Taxpayer maintains that the transaction is a sale in interstate commerce and qualifies for the exemption in Va. Code § 58.1-609.10 4. The Taxpayer suggests that the sale of the vehicle also qualifies for the exemption in Va. Code § 58.1-609.1 2 and has provided evidence that the customer registered the vehicle in his home state after taking delivery of the vehicle from the transport company.

DETERMINATION


Virginia Code § 58.1-609.1 2 provides an exemption from retail sales and use tax for "[m]otor vehicles, trailers, semitrailers, mobile homes and travel trailers." For purposes of the retail sales and use tax, Va. Code § 58.1-602 defines the term "motor vehicle" as:
    • a "motor vehicle" as defined in § 58.1-2401, taxable under the provisions of the Virginia Motor Vehicles Sales and Use Tax Act (§ 58.1-2400 et seq.) and upon the sale of which all applicable motor vehicle sales and use taxies have been paid.

By statutory definition, a motor vehicle purchased in Virginia is not a motor vehicle for purposes of the Virginia retail sales and use tax exemption in Va. Code § 58.1-609.1 2 if the motor vehicle is riot required to be titled in this state or if the Virginia motor vehicle sales and use tax has not been paid on the vehicle. Based on the information obtained during the audit, the motor vehicle in question was not required to be titled in Virginia and the Virginia motor vehicle sales and use tax was not paid on the vehicle. Title 23 of the Virginia Administrative Code (VAC) 10-210-990 A states, "Any type of motor vehicle which is not subject to the motor vehicle sales and use tax shall be subject to the retail sales and use tax when sold, leased or rented." Thus, the sale of the motor vehicle at issue is subject to the Virginia retail sales and use tax unless the sale of the vehicle qualifies for an applicable exemption.

Virginia Code § 58.1-609.10 4 provides an exemption from the retail sales and use tax for the "[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth." Title 23 VAC 10-210-780 is the regulation that interprets this exemption. Subsection A of this regulation states, in part, "[t]he tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia." The regulation provides several examples of sales transactions that are considered sales in interstate and foreign commerce to which the tax does not apply. One example is the sale of tangible personal property delivered to the purchaser outside of the state by an independent trucker or contract carrier hired by the seller.

In this case, the auditor held the sale of the motor vehicle taxable because it did not appear that the shipment of the vehicle met any of the criteria or examples in Title 23 VAC 10-210-780 required to qualify for the exemption. The auditor noted that the Taxpayer did not bill the customer for the shipping costs to deliver the motor vehicle. The motor carrier was responsible for billing the customer for delivery. Based on this fact and other information obtained during the audit, the auditor determined that the customer took constructive possession of the motor vehicle in Virginia by arranging for the pick up and shipment of the vehicle to its out-of-state location.

The Taxpayer states that it hired a freight broker to arrange for the shipment of the vehicle to the customer. Under this arrangement, which the Taxpayer frequently uses, the freight broker or the motor vehicle carrier, rather than the Taxpayer, bills the customer for the freight and delivery charges. The Taxpayer has provided documentation with its appeal indicating that a freight broker arranged for a motor vehicle transport company to deliver the motor vehicle at issue to the out-of-state customer. For this reason, the sale of the motor vehicle is a sale in interstate commerce and is exempt from the Virginia retail sales and use tax.

CONCLUSION


Based on the above, the contested motor vehicle sale was improperly included in the audit. The Department's records indicate that the Taxpayer paid the contested assessment in the amount of *****. A refund of the overpayment amount of with applicable interest, will be issued to the Taxpayer within 30 days.

The Code of Virginia sections and regulations cited, along with other reference documents, 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 concerning this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
              • Sincerely,


              • Craig M. Burns
                Tax Commissioner



AR/1-4979792768.S


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46