Tax Type
Retail Sales and Use Tax
Description
Railcar rebates; Leases
Topic
Computation of Tax
Date Issued
07-29-1993
July 29, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear***********
This will follow up with your meeting on February 12, 1993, with members of my Tax Policy staff regarding the department's November 5, 1992 determination to your client,*************(the "Taxpayer"). You sought reconsideration of the determination based upon additional information provided.
After reviewing the additional information provided and upon further comparison of the instant case with the facts in P.D. 90-121 (8/1/90) in which the department issued its first ruling on the issue of railcar rebates, I find no distinguishing factor nor any other basis for revising my prior determination to the Taxpayer. While P.D. 90-121 assumed a transaction where railcar rebates accrued to the lessee, rather than the lessor as in this case, this fact has no bearing on the department's determination with respect to railcar rebates.
Furthermore, while you maintain that the mileage credits are similar to cash discounts, I cannot agree. In a cash discount situation, the sales price of an item -- the amount upon which the tax is calculated -- is reduced by the amount of the discount by a dealer. In this case, however, the lease payments remain the same and the railcar owner merely credits the payment received from the railway company to the Taxpayer's account.
In addition, the tax treatment of mileage credits can be likened to that of manufacturer's coupons, the value of which is included in the sales price of merchandise. For example, when a retailer accepts $.80 in cash and a manufacturer's coupon valued at $.20 for a product, the tax is computed on $1.00. Thus, the value of the manufacturer's coupon and the cash paid for an item together comprise the sales price of the item -- the basis for the tax. In this case, the lease payments by the Taxpayer and the mileage credits paid by the railway company both represent taxable lease payments and the combination of the credits and other payments represent the car owner's gross proceeds from the leases -- the basis for the tax.
Accordingly, the assessment is due and payable. A revised Notice of Assessment will be mailed to the Taxpayer as soon as practicable and should be paid within 30 days to avoid the accrual of additional interest and collection activities
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6738H
Rulings of the Tax Commissioner