Tax Type
Retail Sales and Use Tax
Description
Freecatalogs; Exemptions; Sales for resale
Topic
Taxability of Persons and Transactions
Date Issued
07-29-1985
July 29, 1985
Dear ****
This will reply to your letter of June 28, 1985, in which you submit a request for ruling on the applicability of the sales and use tax to catalogs used in Virginia by * * *, to solicit sales for its retail outlets in the state.
FACTS
* * * (Taxpayer) is engaged in the operation of various retail outlets in Virginia. In conjunction with such operations, the taxpayer has in the past provided its customers with free catalogs displaying its merchandise. The Taxpayer requests a ruling as to the applicability of the tax if it were to instead charge customers a fee for its catalog, providing them at the same time a merchandise certificate good for a discount on certain purchases. In addition, the Taxpayer requests a ruling to the effect that its present method of providing catalogs free of charge does not represent a taxable use of the catalogs in Virginia by the Taxpayer. In such instances, the Taxpayer asserts that the cost of catalogs provided at no cost to customers is absorbed in the cost of goods later sold, thus a use tax on the catalogs and a sales tax on goods sold at retail would result in double taxation.
RULING
Section 58.1-604 of the Code of Virginia imposes ``a tax upon the use or consumption of tangible personal property' in Virginia. ``Use' is defined in Virginia Code Section 58.1-602.20 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.'
Under the above definition, the Taxpayer would incur a use tax liability whenever he provides tangible personal property to customers free of charge as such donations represent an exercise of power incident to ownership. However, if the same property were to be sold, the Taxpayer would need only to collect the salestax from customers based upon the sales price of the property.
Based upon the foregoing, the Taxpayer will incur no use tax liability on any catalogs sold to customers. Any catalogs for resale can be purchased exclusive of the tax under a resale exemption certificate; however, a tax will be due on any catalogs removed from resale inventory in Virginia for use by the Taxpayer.
If it charges customers for its catalogs, the Taxpayer proposes to provide catalog purchasers with a merchandise certificate good for a discount on purchasers over a specific dollar amount. In such an event, I would find the value of a redeemed merchandise certificate to be nontaxable to either the Taxpayer or its customer under the provisions of Section 630-10-27.2 of the Virginia Retail Sales and Use Tax Regulations. I find the instant merchandise certificate to be directly analogous to a retailer's coupon, which is deemed in the above regulation to merely advertise a discount in the selling price of an article.
As to the Taxpayer's final point, I find no merit to the proposition that the only tax due on catalogs given away be the Taxpayer is that collected from customers on future sales of tangible personal property, the selling price of which includes the cost of the catalogs to the taxpayer. The Virginia tax applies to all sales or uses of tangible personal property in the state except those specifically exempted from the tax. As the exemption set fourth in Virginia Code Section 58.1-608.30 is inapplicable because the instant catalogs are for use in Virginia, I see no basis for the exemption of give-away catalogs from the tax. Citing the Florida case of Scripto v. Carson, 105 Sa. 2d 775 (1958), the Taxpayer seemingly asserts a resale exemption for such give-aways; however, the factual situation of that case is readily distinguishable from the factual situation here.
Scripto involved metal containers delivered at no separate charge along with an assortment of writing instruments to
wholesalers. The wholesalers in turn resold the package, container and writing instruments, to retailers; thus, the transaction between Scripto and its wholesalers was rightly deemed a sale for resale with respect to the metal containers. The Florida Court did not, however, address the plaintiff's assertion that the tax was collected on the containers when the writing instruments were ultimately sold at retail separate from the containers.
Neither does Boye Needle v. Department, 45 Ill. 2d 484, 259 N.E. 274 (1970), stand firmly for the Taxpayer's contention. In that case, the Illinois Court relied on a rule published by the Illinois Department of Revenue in concluding that merchandising displays provided to retailers along with knitting and sewing supplies for resale were exempt from the tax. Virginia has no regulation equivalent to the Illinois rule stating that property given away to retailers ``along with' other goods for resale is itself deemed a resale item.
Even if the above cited cases were deemed to be indicative of Virginia law, it is obvious that those cases dealt with items provided free of charge along with goods sold for ultimate resale. In this case, the provision of catalogs to customers is entirely separate from sales of tangible personal property. Furthermore, there is no direct correlation that for every catalog given away that a retail sale will occur and it also seems likely that some persons who have never seen the Taxpayer's catolog will make purchases in the Taxpayer's retail outlets.
As give-away catalogs do not pass to customers as a direct part of retail sales (as do bags, boxes, etc. used to package goods sold), they must be deemed taxable, as are charges for other tangible personal property the cost of which is taken into account when pricing goods for sale. Such taxable property entering into the pricing of goods might include cash registers, display racks, office furniture, telephones, heating and cooling equipment, and virtually hundreds or thousands of other items, as well as catalogs.
I trust that this will answer the questions posed, but please feel free to contact the department if further questions arise.
W. H. Forst
Tax Commissioner
Dear ****
This will reply to your letter of June 28, 1985, in which you submit a request for ruling on the applicability of the sales and use tax to catalogs used in Virginia by * * *, to solicit sales for its retail outlets in the state.
FACTS
* * * (Taxpayer) is engaged in the operation of various retail outlets in Virginia. In conjunction with such operations, the taxpayer has in the past provided its customers with free catalogs displaying its merchandise. The Taxpayer requests a ruling as to the applicability of the tax if it were to instead charge customers a fee for its catalog, providing them at the same time a merchandise certificate good for a discount on certain purchases. In addition, the Taxpayer requests a ruling to the effect that its present method of providing catalogs free of charge does not represent a taxable use of the catalogs in Virginia by the Taxpayer. In such instances, the Taxpayer asserts that the cost of catalogs provided at no cost to customers is absorbed in the cost of goods later sold, thus a use tax on the catalogs and a sales tax on goods sold at retail would result in double taxation.
RULING
Section 58.1-604 of the Code of Virginia imposes ``a tax upon the use or consumption of tangible personal property' in Virginia. ``Use' is defined in Virginia Code Section 58.1-602.20 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.'
Under the above definition, the Taxpayer would incur a use tax liability whenever he provides tangible personal property to customers free of charge as such donations represent an exercise of power incident to ownership. However, if the same property were to be sold, the Taxpayer would need only to collect the salestax from customers based upon the sales price of the property.
Based upon the foregoing, the Taxpayer will incur no use tax liability on any catalogs sold to customers. Any catalogs for resale can be purchased exclusive of the tax under a resale exemption certificate; however, a tax will be due on any catalogs removed from resale inventory in Virginia for use by the Taxpayer.
If it charges customers for its catalogs, the Taxpayer proposes to provide catalog purchasers with a merchandise certificate good for a discount on purchasers over a specific dollar amount. In such an event, I would find the value of a redeemed merchandise certificate to be nontaxable to either the Taxpayer or its customer under the provisions of Section 630-10-27.2 of the Virginia Retail Sales and Use Tax Regulations. I find the instant merchandise certificate to be directly analogous to a retailer's coupon, which is deemed in the above regulation to merely advertise a discount in the selling price of an article.
As to the Taxpayer's final point, I find no merit to the proposition that the only tax due on catalogs given away be the Taxpayer is that collected from customers on future sales of tangible personal property, the selling price of which includes the cost of the catalogs to the taxpayer. The Virginia tax applies to all sales or uses of tangible personal property in the state except those specifically exempted from the tax. As the exemption set fourth in Virginia Code Section 58.1-608.30 is inapplicable because the instant catalogs are for use in Virginia, I see no basis for the exemption of give-away catalogs from the tax. Citing the Florida case of Scripto v. Carson, 105 Sa. 2d 775 (1958), the Taxpayer seemingly asserts a resale exemption for such give-aways; however, the factual situation of that case is readily distinguishable from the factual situation here.
Scripto involved metal containers delivered at no separate charge along with an assortment of writing instruments to
wholesalers. The wholesalers in turn resold the package, container and writing instruments, to retailers; thus, the transaction between Scripto and its wholesalers was rightly deemed a sale for resale with respect to the metal containers. The Florida Court did not, however, address the plaintiff's assertion that the tax was collected on the containers when the writing instruments were ultimately sold at retail separate from the containers.
Neither does Boye Needle v. Department, 45 Ill. 2d 484, 259 N.E. 274 (1970), stand firmly for the Taxpayer's contention. In that case, the Illinois Court relied on a rule published by the Illinois Department of Revenue in concluding that merchandising displays provided to retailers along with knitting and sewing supplies for resale were exempt from the tax. Virginia has no regulation equivalent to the Illinois rule stating that property given away to retailers ``along with' other goods for resale is itself deemed a resale item.
Even if the above cited cases were deemed to be indicative of Virginia law, it is obvious that those cases dealt with items provided free of charge along with goods sold for ultimate resale. In this case, the provision of catalogs to customers is entirely separate from sales of tangible personal property. Furthermore, there is no direct correlation that for every catalog given away that a retail sale will occur and it also seems likely that some persons who have never seen the Taxpayer's catolog will make purchases in the Taxpayer's retail outlets.
As give-away catalogs do not pass to customers as a direct part of retail sales (as do bags, boxes, etc. used to package goods sold), they must be deemed taxable, as are charges for other tangible personal property the cost of which is taken into account when pricing goods for sale. Such taxable property entering into the pricing of goods might include cash registers, display racks, office furniture, telephones, heating and cooling equipment, and virtually hundreds or thousands of other items, as well as catalogs.
I trust that this will answer the questions posed, but please feel free to contact the department if further questions arise.
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner