Tax Type
Retail Sales and Use Tax
Description
Packaging Materials and Containers; Invoice and Delivery Slips
Topic
Taxability of Persons and Transactions
Date Issued
04-29-1992
April 29, 1992
Re: Retail Sales & Use Tax
Dear**************:
This will reply to your letter of July 29, 1991 seeking the correction of sales and use tax assessed to your client, * * * (the Taxpayer), as the result of an audit for the period March, 1987 through February, 1990.
FACTS
The Taxpayer, as a retail pizza franchise, receives pizza orders from its customers by phone for delivery to their homes. Upon receipt of the phone order, the Taxpayer's computer system automatically transmits the information to the store location which will prepare and deliver the pizza. The transmitted information is printed on a four copy "slip' which is used in the following manner:
- Copy 1 remains on the printer as a master;
- Copy 2 is distributed to the pizza maker and then discarded;
- Copy 3 is used by the driver for delivery to the correct address and submitted at the end of the driver's shift for verification of deliveries; and
- Copy 4 is attached to the pizza box and delivered to the customer.
Further, the Taxpayer also protests the application of penalty to the uncontested portion of the audit (third generation) under the contention that its second generation audit produced no liability and therefore, should not be considered as part of the Taxpayer's audit history. Thus, the current audit should be held as the second generation audit and henceforth, subject to the appropriate compliance ratio requirements.
Finally, the Taxpayer offers to remove the fourth copy of the "slip' from its delivery boxes in compromise of the tax assessed upon the slips' in the audit. Additionally, the Taxpayer will remit the sum of * * * in full settlement of the contested portion of the audit and waiver of the penalty applied to the uncontested portion of the audit.
DETERMINATION
I will address the issues presented individually.
"Slips'
VR 630-10-53 provides that "[t]he tax does not apply to purchases of labels, tags or nameplates when used solely for packaging tangible personal property for sale. These purchases become part of the product for sale or resale.' However, "[t]he tax does apply to purchases of inserts and invoices, etc.'
The "slips' as described in this case do not qualify for the exemption cited above since they are not used solely for packaging tangible personal property for sale. Copies 1, 2 and 3 all serve an administrative function because they give details of the sale transaction, direct personnel in filling the order correctly and serve to record the number of deliveries made by each driver. Copy 4, which is attached to the package, may in fact provide information on the nature, price, size and destination of the package, but it can also be construed as the customer's copy of the invoice (a receipt). Therefore, the "slips' are essentially equivalent to invoices which are taxable.
The department's policy with respect to exemption from the sales and use tax is dictated by the rule of strict construction established by the Virginia courts. The Virginia Supreme Court has consistently held that "exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption.' See Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).
The wording set forth in the regulation was intended to strictly construe this exemption for labels, tags and nameplates when used for packaging tangible personal property only..
The department addressed a similar issue concerning the taxation of "door slips' with regard to the Taxpayer in ruling letters dated 12/6/83 and 10/25/84, copies enclosed. According to both documents the Taxpayer protested the use tax assessed upon "door slips' as the result of its first generation audit and it was determined that the purchase of the "door slips' did not qualify for exemption under VR 630-10-53 as they are also considered administrative items, ancillary to the sale of tangible personal property and not a direct part of the sale. The department's policy has been consistent concerning these issues and the auditor was correct in assessing the tax.
Penalty
The department's records indicate that the Taxpayer has been reviewed for three audit cycles. The application of the department's policy on compliance ratio requirements regarding the assessment of penalty is consistent and as such is not contingent upon the results of a given audit during the audit history. Therefore, penalty was properly applied to the uncontested area of the audit.
Offer In Compromise
Va. Code § 58.1-105 authorizes the Tax Commissioner to accept offers in compromise of tax liability where there is doubtful liability or doubtful collectibility. Based on the facts presented in this case, I cannot agree to accept the Taxpayer's offer as the issues discussed in this case are not questionable but rather a matter of established policy and no information has been provided by the Taxpayer to substantiate any claim of a financial inability to remit the full amount of the assessment.
Accordingly, the Taxpayer will receive an updated "Notice of Assessment' under separate cover which should be paid within 30 days to avoid the accrual of additional interest charges.
Sincerely,
W. H. Forst
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner