Tax Type
Retail Sales and Use Tax
Description
Mail order sales company; Catalogs, transportation charges, mailing lists
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
03-04-1993
March 4, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear-----------
This will reply to your letter of January 25, 1991 in which You seek correction of a sales and use tax assessment for your client, *********** (the "Taxpayer") for the period September 1988 through June 1990.
FACTS
The Taxpayer, primarily a mail order sales company, also has a retail store in Virginia. It was audited and found liable for unreported sales and use taxes. It takes issue with the entire audit liability which relates to the following four items: (1) use tax on catalogs mailed into Virginia, (2) transportation charges, (3) income from the rental of mailing lists, and (4) the Taxpayer's date of nexus.
DETERMINATION
I will address each of the areas contested by the Taxpayer individually below:
Use tax on catalogs mailed into Virginia: Va. Code §58.1-604 imposes a tax upon the "use or consumption of tangible personal property in this Commonwealth, or the storage of such property outside the Commonwealth for use or consumption in this Commonwealth." "Use" is defined in Va. Code §58.1-602 as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business"
In the instant case catalogs which were printed in another state and mailed by the printer to customers and potential customers within Virginia free of charge were held taxable in the audit. These charges were erroneously included in the assessment and will be removed as the Taxpayer made no use of the catalogs in Virginia.
Transportation charges: Va. Code §58.1-608(5)(c) exempts from the sales tax transportation charges separately stated. Virginia Regulation (VR) 630-10-107 defines transportation and delivery charges as "charges for delivery from the seller to the purchaser...and includes postage or common carrier charges." Handling charges are not transportation charges and thus are taxable. Additionally, a combined charge for transportation and handling is entirely taxable.
The Taxpayer charges a set fee for the shipping of items based upon the weight and size of the product being shipped. The charges are the same throughout the country and are designed to satisfy the average freight costs throughout the country. Consequently, in some instances the actual shipping charge paid to the carrier by the taxpayer may be less than the amount charged to the customer and vice versa. The Taxpayer maintains that the transportation charges are exempt as they are separately stated on the sales invoice and represent the approximate cost of transportation of the items sold to Virginia residents. However, the auditor held taxable the revenues generated from the transportation charges paid by customers exceeding the actual amount required for shipping.
Since this is the first audit of the Taxpayer and the Taxpayer's shipping charges are ostensibly designed to approximate the actual shipping costs, I will agree to remove these charges from the assessment. However, the department is currently revising Virginia Regulation (VR) 630-10-107 on transportation or delivery charges to provide more specific guidance on the types of charges that are exempt or taxable.
Rental of mailing lists: The Taxpayer rents names-on its mailing lists to list brokers as well as to end-user customers. It maintains that such lists are customized to a customer's specifications. Charges for the rental of mailing lists were included in the audit.
Mailing lists produced to a customer's specifications are exempt from the sales and use tax as inconsequential elements of personal service transactions. However, standard mailing lists are subject to the tax as they involve no special service element. Since the Taxpayer has provided information indicating that the mailing lists sold in Virginia were customized based on age, cost of purchases made, etc., they will be removed from the assessment.
Date of Nexus: The audit period began September 15, 1988, yet the Taxpayer argues that the opening of its retail store, and thus, its tax liability, did not occur until November 17, 1988. It maintains that the first two months of the audit period were erroneously included in the audit. Department records indicate that the Taxpayer registered f or use tax liability in September 1988, thus the audit period is accurate.
Accordingly, the assessment will be revised as explained above and a revised notice of assessment will be sent to the Taxpayer as soon as practicable.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/4913H
Rulings of the Tax Commissioner