Tax Type
Retail Sales and Use Tax
Description
Packaging; Pallets; Sampling techniques
Topic
Taxability of Persons and Transactions
Date Issued
12-10-1992
December 10, 1992
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This will reply to your letter of February 10, 1992 in which you request correction of a sales and use tax assessment for **************(the "Taxpayer").
FACTS
The Taxpayer is in the business of printing newsletters, flyers, communiques, portfolios and similar items, which it ships throughout the country. It contests the tax on pallets and the sample method used in an audit for the period April 1, 1988 through March 31, 1991.
The Taxpayer considers pallets to be packaging materials exempt under Virginia Regulation (VR) 630-10-26. The Taxpayer contends the pallets are only purchased when specifically requisitioned by the customer. Printed materials are placed on the pallets and held secure by shrink wrapping. Once the pallets are shipped, they become the property of the customer. In addition, the Taxpayer contests the sampling procedures used to generate the sales portion of the assessment because it is based on invoices two years apart.
DETERMINATION
Pallets
VR 630-10-26, provides in pertinent part that:
-
- Packaging materials may be purchased tax exempt by wholesalers and retailers as purchases for resale, if the items are marketed with the product being sold and become the property of the purchaser. Pallets used to brace or
secure cargo for transport and restrain product movement in a single plane of direction are not packaging materials and may not be purchased tax exempt unless purchased for resale. (Emphasis added.)
- Packaging materials may be purchased tax exempt by wholesalers and retailers as purchases for resale, if the items are marketed with the product being sold and become the property of the purchaser. Pallets used to brace or
Sampling
Sampling is an audit technique of significant value that is widely used in both the public and private sectors. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit. The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and the burden of evidence is upon the taxpayer to prove otherwise. The Taxpayer has not mat that burden.
The Taxpayer agreed to the use of November 1988, November 1989, November 1990 and February 1991 as sample months for reasons that were beneficial to both the Taxpayer and the auditor. The sample periods selected were sufficient in quantity and frequency to be representative of the entire audit period.
A deficiency was found in two of the sample months. The auditor divided the total sample deficiency by the number of sample months in order to compute an average deficiency for each month. This average deficiency was used as the taxable sales measure for each month of the audit period with the exception of the sample months shown above. In these sample months, the actual sample deficiency was used as the taxable sales measure. However, the total taxable sales measure for the audit period was the same as if the average deficiency was used for each month. Therefore, the taxable sales measure shown in the audit report is correct.
Based on the foregoing, the audit will be revised to remove the purchase of pallets used as packaging materials and a corrected Notice of Assessment will be issued under a separate cover.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6309N
Rulings of the Tax Commissioner