June 16, 2015
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 assessments issued for the period January 2011 through January 2014. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a sign manufacturer located outside of Virginia. The Taxpayer contests the assessment of tax on combined shipping and handling charges. The Taxpayer maintains that the charges labeled "Ship/Handling" on the invoices are for shipping charges only. The Taxpayer states that separate handling charges are listed on the invoices at issue when a handling charge is incurred.
The Taxpayer provides invoices from the company that shipped the property at issue to the Taxpayer's customers. The Taxpayer asserts that these invoices indicate the amount charged by the shipping company, and those charges correspond with the shipping charges invoiced to the Taxpayer's customers in the transactions at issue. The Taxpayer maintains that the documentation provided supports its contention that the charges at issue are for shipping only and are exempt of the tax.
DETERMINATION
Virginia Code § 58.1-609.5 3 states that the retail sales and use tax does not apply to "transportation charges separately stated." Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 A states:
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.
Title 23 VAC 10-210-6000 B states that:
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 or 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.
The Tax Commissioner has addressed the Taxpayer's issue in prior determinations. In Public Document (P.D.) 96-119 (6/4/96), the taxpayer 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 shipping and taxable handling rendered the entire charge taxable, the Department agreed to remove the shipping portion from the assessed charges based on the vendor statements.
In P.D. 97-79 (2/18/97), the taxpayer was assessed tax on lump-sum shipping and handling charges. The Tax Commissioner found that although the taxpayer invoiced charges as "shipping and handling," the amounts were exempt freight and insurance charges. Accordingly, the charges were removed from the audit.
In P.D. 11-126 (7/6/11), the taxpayer was assessed tax in the audit on combined shipping and handling charges. The taxpayer maintained that the charges were mislabeled on the invoices and were for shipping only. Based upon the rulings in Public Documents 96-119 and 97-79, and because the audit was a first time audit for the taxpayer, the taxpayer was given the opportunity to provide documentation to support its contention that the charges at issue were only for shipping.
In accordance with the above authorities, and based upon a review of the documentation provided by the Taxpayer, I find that the charges at issue are for separate shipping charges that do not include charges for handling. The invoices from the shipping company reflect the charges for shipping on the Taxpayer's invoices. Therefore, for the purpose of this audit only, the Taxpayer is not liable for the assessments related to the shipping charges at issue. Liens have been processed on the bills at issue. Accordingly, the Taxpayer will receive a refund of the amounts captured in the liens, plus interest accrued to date. Any remaining balances on the assessments will be abated.
Please note that the labeling used by the Taxpayer during the audit period would likely result in an assessment of tax on these types of charges in a future Department audit. To avoid being similarly assessed in the future, the Taxpayer must be sure to state and label exempt shipping charges separately from taxable handling charges.
The Code of Virginia section, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. 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
AR/1-5875202830.P