Tax Type
Retail Sales and Use Tax
Description
Withdrawals from inventory
Topic
Taxability of Persons and Transactions
Date Issued
04-11-1984
April 11, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear ****
This will reply to your letter of March 15, 1983 in which you submit an application for correction of sales and use tax assessed to ***** as the result of an audit.
FACTS
The national headquarters of the ***** (hereinafter *****) is engaged in providing support services to nine division offices which are integral parts of the corporation and to various ***** clubs which are merely affiliates of the corporation, maintains an inventory of materials at its headquarters from which items are withdrawn for sale to affiliated clubs or transfer to division offices.
***** contests the assessment of tax upon items transferred from its headquarters, located within Virginia to its District of Columbia division office, also located within Virginia, and other division offices. Tax was erroneously paid to the District of Columbia on such items. In addition, ***** contests the imposition of tax upon camera-ready artwork used in the production of ***** books, ***** and other such publications for resale.
DETERMINATION
Additional information relating to this matter has been requested from ***** on several occasions, but has not been received by this office. Consequently, this determination is based upon the facts presently before me.
§ 58-441.5 of the Code of Virginia imposes a tax "upon the use or consumption of tangible personal property in this State." Virginia Code § 58-441.3(h) in turn defines "use" as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." Lastly, Virginia Code § 58-441.17(c) provides:
"If a purchaser...who gives a certificate (of exemption from sales tax)...makes any use of the property other than an exempt use or retention, demonstration, or display while holding property for resale, distribution, or lease...such use shall be deemed a taxable sale by the purchaser...as of the time the property...is first used by him, and the cost of the property to him shall be deemed the sales price of such retail sale."
In this case, ***** purchased various materials exclusive of the sales and use tax for the purpose of stocking its headquarters inventory. Such materials were subsequently sold to affiliated ***** clubs or distributed to other divisions of *****. Since the Virginia sales tax was not paid by ***** on its purchases of materials, its transfer of inventory items to its District of Columbia and other division offices represents a taxable use of such inventory items for a purpose other than for resale. Accordingly, ***** is subject to Virginia sales and use tax when items for use by its division offices are removed from headquarters inventory even though such items may subsequently be shipped out-of-state, see Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E. 2d 413 (1980) and Commonwealth v. Pounding Mill Quarry, 215 Va. 647, 212 S.E. 2d 428 (1975). Therefore, I find no basis for the relief or compromise of this assessment notwithstanding the fact that sales and use taxes were erroneously paid to the District of Columbia on such transfers.
With respect to camera-ready artwork, such items cannot be purchased under a resale exemption inasmuch as the artwork itself is not resold but is instead used in the production of ***** books and similar publications which are later sold by *****. The purchase of such artwork is a purchase of tangible personal property for *****'s own use or consumption. In this case, ***** provides such artwork to independent printers for their use in producing publication for *****.
Based upon the foregoing, I must conclude that the entire assessment issued to ***** is correct and due and payable.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner