Tax Type
Retail Sales and Use Tax
Description
Property Used by Common Carriers
Topic
Taxability of Persons and Transactions
Date Issued
11-05-1992
November 5, 1992
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letter of March 29, 1991 in which you seek correction of a sales and use tax assessment for *****************(the "Taxpayer").
FACTS
The Taxpayer operates as a common carrier in the Commonwealth pursuant to a certificate issued by the Interstate Commerce Commission. An audit of the Taxpayer for the period May, 1987 through April, 1990 produced an assessment for its failure to remit tax on expense items withdraw from tax free inventories, expense purchases on which no sales tax was charged, and purchases of fixed assets. The Taxpayer protests the inclusion of specific items and requests a determination on each,
DETERMINATION
Virginia Regulation (VR) 630-10-24,3 provides that tangible personal property used by a common carrier falls into four general areas of usage: administrative; maintenance and repair; transport of property; and storage and temporary deposit.
Subsection 3(A) of the regulation states that all tangible personal property used in administrative functions of the common carrier is subject to the tax. Administrative functions include, but are not limited to, billing, collecting, soliciting, purchasing, and record keeping.
Subsection 3(A)(2)(c) of the regulation defines the transportation function as that activity that encompasses the actual performance of the transportation, i.e,, receipt, actual transport, delivery, the
protection of the tangible personal property, and functions essential in the transport of the property. This includes property used on the revenue vehicles as well as property used in loading, unloading, and safeguarding the cargo. Tangible personal property used in the transport function is deemed to be used directly in the rendition of the public service and is therefore exempt.
I will address the items that are subject to your appeal below.
Purchases Exceptions List
Subsection B(3) of the regulation sets out examples of exempt items used directly in the transportation function, including "waybills, freight bills, and bills of lading carried with the freight being transported" and "drivers log books."
Answering Service Postcards and Delivery Notices are items that do not travel with the package in transport and are facilitative but not essential to the delivery function. These items are used to serve an administrative function for the Taxpayer and are therefore taxable.
Acknowledgment of Delivery Forms, Adult Signature Required Labels and Delivery Records are carried with the package being transported and thus used directly in the transportation function of the Taxpayer. By indicating the pickup, destination, or content of the items shipped, these items are analogous to and perform the same function as waybills, freight bills, drivers log books, and bills of lading and as such are exempt from the tax.
Customer Counter Receipts, Pick-Up Records and Call Tags are multipart forms serving dual functions. The part(s) of the form that serve(s) an administrative function is taxable but the part that travels with the package is essential to the delivery of the package and is exempt on a proration basis.
COD Tags, while carried with the package, are not involved with the actual transportation of the package and thus are taxable.
Hazardous Material Shipping Papers, Records and Envelope Records, and TOFC Rail Carrier Envelopes indicate the origination point, content of package and destination of any hazardous shipment and are required by federal law to accompany any hazardous material shipment while in transport. Because these items are essential to the transport of the shipment, these items are directly used in the transportation function and are thereby exempt.
The 130 inch chains are used by the Taxpayer and its customers to measure the width and length of a package. Because packages above a certain size may not be transported, chains used to measure the proportions of a package are essential to the transportation function and thus are exempt.
Microwands are used by the Taxpayer to keep track of the packages while in transport. Therefore, charges for the repair of microwands will be exempt under VR 630-10-24.3(A)(2)(b).
It is my understanding that the Customer Counter Labels have already been removed from the audit by the auditor.
Fixed Asset Exceptions
VR 630-10-24.3(A)(2)(c) provides that tangible personal property used to safeguard cargo carried by a common carrier of property by motor vehicle while in temporary storage will be exempt from the tax as part of the transportation function. In the present case, the Taxpayer uses an alarm system to provide security for packages in temporary deposit. Under VR 630-10-24.3(A)(2)(c), the alarm system will be exempt from the tax.
The determinations regarding the taxability of the various items on the Purchases Exceptions List are based on information supplied by the Taxpayer as to their usage. An auditor from the*************** District Office will be contacting you in order to verify the actual usage of the forms and will make the necessary revisions to the assessment in accordance with this determination and his findings.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5115H
Rulings of the Tax Commissioner