Tax Type
Retail Sales and Use Tax
Description
Promotional sales; Discounted items
Topic
Taxability of Persons and Transactions
Date Issued
10-22-1984
October 22, 1984
Re: Ruling Request: Sales and Use Tax
Dear ****
This will reply to your letter of May 31, 1984 concerning application of sales and use tax to promotional sales of items at a discount.
§ 58-441.4 of the Code of Virginia imposes a tax on the sales price of any tangible personal property sold in Virginia. Sales price is defined in Va. Code §58-441.3 and in Va. Retail Sales and Use Tax Regulations § 1-95 as the total amount for which tangible personal property is sold, "valued in money, whether paid in money or otherwise. For example, items which are purchased, for which a manufacturer's coupon is presented, are valued at the full price listed for the item because the retailer will receive his full retail price, part from the manufacturer and part from the customer. The sales price of an item for which a retailer's coupon is presented, however, is the price listed for the item less the amount of the coupon presented because the coupon is of no value to the retailer (he absorbs the loss resulting from the discount). The coupon merely advertises discounts. (See Va. Retail Sales and Use Tax Regs. §1-27.2.) When a business sells two pizzas for the price of one, the same reasoning applies: the sales price is the total amount for which the pizzas are sold, and the sales tax is applied to the sales price.
When a business advertises pizzas as "Buy one, get one free," the same economic transaction has taken place as if two pizzas had been sold for the price of one. Accordingly, we rule that the same tax treatment applies to these economically similar transactions, that is, sales tax is applied to the total amount for which the pizzas are sold. This ruling represents a change from existing policy which imposed use tax on the cost of ingredients in the "free pizza," which ingredients had been purchased exempt from sales tax on the grounds that there would be a resale. This change has retroactive effect and refunds will be honored within the applicable statute of limitations.
Please let me know if we can provide additional information.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner