Tax Type
Retail Sales and Use Tax
Description
Catalogs
Topic
Taxability of Persons and Transactions
Date Issued
01-16-1986
January 16, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****************
This will reply to your letter of October 25, 1985 requesting correction of an assessment issued in the above-referenced case for the period December 1, 1981 through November 30. 1984.
FACTS
In connection with its retail merchandise business in Virginia, taxpayer purchases catalogs for placement in its stores and free distribution to customers. Taxpayer was assessed use tax on such purchases of catalogs from suppliers. Taxpayer contests the imposition of the use tax on the grounds that the cost of such catalogs to it are passed on to its customers in the sales price of merchandise. Therefore, according to taxpayer, assessing a use tax on such catalogs results in double taxation. Alternatively, taxpayer contends that it 18 being denied equal protection of the laws of the U.S. and Virginia Constitutions, when the department exempts from the use tax similarly situated retailers who sell their catalogs to customers, but imposes the tax on retailers like itself who give them away.
DETERMINATION
§630-10-109 of the Virginia Sales and Use Tax Regulations provides in pertinent part, that "[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." "Use" is then defined in §58.1-602(20) of the Virginia Code to mean, "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."
For the following reasons, I am unpersuaded by taxpayers argument that imposing a use tax on its purchases of such catalogs results in double taxation. At the outset, there is no identity of taxable entity which is the minimum requirement for proof of double taxation. Secondly, there is no guarantee that the donees of taxpayer's catalogs will ever make a purchase of an item from taxpayer's inventory of taxable merchandise. It is also reasonable to assume that many of taxpayer's customers will make purchases of such taxable merchandise without ever having received a copy of taxpayer's catalog. Therefore, no case of double taxation can be reasonably inferred under the circumstances.
Taxpayers assertion of unequal treatment by the department is also without merit. In running its retail business in Virginia, taxpayer decided to distribute its catalogs free of charge, while some of taxpayers competitors elected to sell their catalogs. Therefore, at all times relevant to the audit in this case, taxpayer elected to do business in a manner slightly different from some of its competitors, resulting in differing tax consequences. Thus, taxpayer cannot now claim discrimination by the department for its own decision.
Furthermore it is a well established rule of constitutional law that "the equal protection clause does not forbid discrimination with respect to things that are different," Rinaldi v. Yeager, 384 U.S. 305, 86 S. Ct. 1497. Taxpayers assertion that its competitors, who purchase their catalogs for resale, receive an unfair tax advantage over retailers like itself, who purchase such catalogs for free distribution does not support a claim of arbitrary or invidious discrimination, since the two situations are fundamentally different.
Lastly, if taxpayers competitors were in reality reaping such an unfair advantage, far fewer Virginia retailers would be willing to continue to distribute their catalogs to customers free of charge. In other words, there 18 nothing to prevent taxpayer, (at least for the future), from reaping the same "benefits" as its competitors.
Based on all of the foregoing, and in accordance with my prior ruling letter dated July 29, 1985, I find no basis to adjust the assessment in this case, the full amount of which is hereby due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner