Tax Type
Retail Sales and Use Tax
Description
Property withdrawn from resale inventory for own use and then shipped out-of-state
Topic
Taxability of Persons and Transactions
Date Issued
06-07-1988
June 7, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear**************
This will reply to your letter dated March 11, 1988 in which you seek correction of sales and use tax assessed *********** to as the result of a recent audit.
FACTS
*********(taxpayer) is a Maryland corporation qualified to do business in the District of Columbia and Virginia. The taxpayer's operations include********** in the District of Columbia and two warehouses and an office within the Commonwealth of Virginia. Merchandise is purchased in bulk and stored in the two Virginia warehouses for distribution to retail stores in the District of Columbia. The-taxpayer pays use tax to the District of Columbia on supply items withdrawn from inventory for use outside Virginia. The taxpayer was assessed Virginia use tax on these withdrawals from inventory on the basis that such property has been used by the taxpayer in Virginia prior to its shipment.
The taxpayer maintains that all supply items shipped from the Virginia warehouses consist of items which undergo no processing or transformation. The items are simply stored at the warehouses and subsequently whipped to the District of Columbia retail drug stores where the supplies are actually used. Therefore, the taxpayer contends the items are not subject to Virginia use tax pursuant to §58.1-608 (20) of the Code of Virginia.
Additionally, the taxpayer maintains that the Code of Virginia provides an exemption for tangible personal property which has been purchased for resale. The taxpayer contends that it does not convert the items to personal use until such time as they are not sold at retail and instead are used by the various retail stores as supplies. Therefore, since the personal use occurs outside the Commonwealth of Virginia, they are not subject to use tax in Virginia.
DETERMINATION
The Virginia Retail Sales and Use Tax Act does provide an exemption for (1) tangible personal property purchased for resale and (2) the delivery of tangible personal property outside the Commonwealth for use or consumption outside the Commonwealth. However, statutory tax exemptions are strictly construed against the taxpayer (Commonwealth v. Research Analysis Corp., 214 Va. 161, 198 S.E.2d 622 (1973)).
The resale exemption is applicable as long as tangible personal property is held for resale. As provided in Virginia Regulation 630-10-32, any item of tangible personal property withdrawn from an inventory of property on which no tax has been paid is subject to the sales and use tax on the cost price of the property withdrawn for purposes other than sale. It is my understanding that the items in question are invoiced as supply items and withdrawn from inventory before being shipped to the retail stores. Since there is no temporary storage provision in the Virginia Retail Sales and Use Tax Act, first use of the supply items occurs in Virginia. Therefore, the taxpayer becomes liable for sales and use tax at the time the items lose their "for resale" status by being withdrawn from inventory for personal use before leaving the Virginia warehouses.
Additionally, the exemption for delivery of property outside Virginia for use outside of Virginia applies to the act of delivery, not the holding of goods in Virginia for delivery outside Virginia. If a taxable event occurs in Virginia, subsequent delivery of property outside of Virginia does not immunize the taxable event. See Commonwealth, Department of Taxation v. Miller-Morton Company, 220 Va. 852, 263 S.E.2d 413 (1980), copy enclosed.
Therefore, based on the foregoing, the assessment for the period October 1, 1984 through August 31, 1987 is proper. I would further advise the taxpayer to contact the proper authorities in the District of Columbia to obtain a refund of taxes erroneously paid to them.
If you have any questions about the issues raised in this appeal or desire a meeting to discuss this determination, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner