Tax Type
Retail Sales and Use Tax
Description
Resales; Promotional giveaways
Topic
Taxability of Persons and Transactions
Date Issued
03-05-1993
March 5. 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear***********
This will reply to your letter in which you seek correction of a sales and use tax assessment for *************(the Taxpayer).
FACTS
The taxpayer is a distributor of snack foods. An audit of the Taxpayer for the period of January 1989 through March 1991 produced an assessment for the Taxpayer's failure to remit tax on samples and giveaways to prospective retail customers.
To attract new business, the Taxpayer give away to retailers product samples and promotional items such as T-shirts, jackets, sweatshirts, etc. The Taxpayer orders these samples and giveaways from its manufacturer and is invoiced for them. When the Taxpayer subsequently gives these items to retailers, it notifies the manufacturer who issues a credit memo to the Taxpayer for all or a portion of the original invoiced amount. You indicate that the intent of these transactions is so the Taxpayer and its manufacturer may share the cost of obtaining new business.
It is your contention that the auditor erroneously listed the credit memos which the Taxpayer received from its manufacturer. You further contend that the samples and giveaways will be taxed by the retailers when sold to the end users.
DETERMINATION
In regard to the items listed on the audit, the auditor maintains that the amounts shown represent the difference between the original invoice costs and the amounts credited By the manufacturer for samples and giveaways. As no evidence to the contrary has been submitted, removing the contested items from the assessment on this basis is unwarranted.
The transactions between the Taxpayer and the suppliers of the T-shirts, jackets, sweatshirts, etc., are not resale transactions because the Taxpayer will give away the items to retailers. As such, the total amount paid by the Taxpayer to the suppliers is subject to tax at the time of purchase.
Any subsequent transaction involving the retailer is separate and apart from the taxable transaction between the Taxpayer and its suppliers. If the retailer sells the articles, it must collect sales tax; if it gives the items away, there is no tax (as the retailer paid nothing for the articles).
Accordingly, the assessment is correct as issued and is now due and payable in full. A payment copy of the assessment, with interest accrued to date. will be mailed shortly.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5527I
Rulings of the Tax Commissioner