Tax Type
Retail Sales and Use Tax
Description
Loading charges; Sand sales
Topic
Taxability of Persons and Transactions
Date Issued
03-27-1987
March 27, 1987
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****************
This will reply to your letter of December 19, 1986, in which you submit an application for correction of sales and use tax assessed to ******** as the result of a recent audit.
FACTS
*************(Taxpayer) is a joint venture performing real estate construction contracts within Virginia. A recent audit of the taxpayer produced an assessment for its failure to remit the sales and use tax on certain of its purchases of sand. The taxpayer contests this assessment, contending (1) certain invoices included in the audit represented charges exclusively for the hauling of sand; (2) that the tax was paid to the seller of the sand as part of the taxpayer's fixed-price contract with the seller; (3) that the same transactions were included in an audit of the seller; and (4) that "loading" charges upon which the tax was assessed are in fact part of the nontaxable transportation charges for the sand.
DETERMINATION
§§58.1-603 and 58.1-604 of the Code of Virginia levy taxes upon the sale or use of tangible personal property in Virginia. The basis of the sales tax, pursuant to §58.1-603 of the Code of Virginia, is the "sales price" of the property sold.
The term "sales price" is defined in §58.1-602.17 of the Code of Virginia as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale...without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever." The statute does provide, however, for the deduction of "transportation charges separately stated" from the total charge when computing sales price.
In addition, §58.1-610 of the Code of Virginia provides that "[a]ny person who contracts...to perform construction...or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption. Any sale...to...such person shall be deemed a sale...to...the ultimate consumer and not for resale and the dealer making the sale...to...such person shall be obligated to collect the tax."
Based on the foregoing statutes, when the taxpayer purchases tangible personal property for use in its real estate construction contracts, the sales tax must be paid to its vendors or the use tax must be paid to the department. In either case, the tax is to be based on the total amount paid for the property, excluding separately stated transportation charges.
Based on the foregoing, I will now analyze the points raised in the taxpayer's appeal.
First, the taxpayer contends that invoices were included in the audit that exclusively represented nontaxable transportation charges. It is asserted that the seller of the sand made no charges whatsoever for the sand itself; rather, the seller charged only for the delivery of the sand. It is my understanding, however, that the transactions in question involved sand obtained from *****. It is my further understanding that all ***** transactions have been removed from the department's audit because the seller collected and remitted the tax on these transactions to the department.
Second, the taxpayer contends that certain transactions were included in both the present audit and an earlier audit of the seller. The department's audit staff specifically examined the records of the seller in this case to assure that the same transactions were not taxed twice; therefore, I see no basis for relief on this point.
Third, the taxpayer contends that loading charges should be treated as exempt transportation charges for purposes of computing the tax. The term "transportation charge" is not defined by statute, but is defined in Virginia Regulation 630-10-107 as "charges for delivery from the seller to the purchaser...and include postage or common carrier charges." As such, the term does not contemplate charges for services unrelated to the actual transportation of the property from the seller to the purchaser. As loading is an activity separate from the actual transportation of property to the purchaser, loading charges do not represent exempt transportation charges. Loading charges in effect may be classified as handling charges, which are specifically excluded from the definition of "transportation charge" found in VR 630-10-107.
Fourth, the taxpayer contends that information on nontaxable transportation charges obtained by the department's auditor should be applied to those invoices for which such information was unavailable. While nonseparately stated transportation charges (lump sum billings) are fully taxable pursuant to VR 630-10-107, I find basis for such an audit revision in this case as this is only the first audit of the taxpayer. Accordingly, the department's auditors will estimate, based on the information available, the percentage of each lump sum billing that represents transportation from the seller to the taxpayer. It must be noted, however, that the taxpayer's suppliers will be fully expected to separately state all transportation charges on their invoices in the future in order to avoid similar problems in the future.
Lastly, the taxpayer contends that by virtue of its contractual agreements with the seller, all taxes due on its purchases of sand are the obligation of the seller. While this may be true, the legal incidence of the sales and use tax is upon the purchaser, United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd, 569 F.2d 811 (4th Cir. 1978). Thus, the assessment of tax to the taxpayer is proper in this instance even though the taxpayer may have a contractual right to proceed against the seller for the reimbursement of any tax paid as the result of this audit.
Based upon the foregoing, I find basis for the revision of the audit with respect to invoices for which information on transportation charges was not available. The necessary audit revisions will be performed as soon as practicable and a revised notice of assessment will be issued to the taxpayer.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner