Tax Type
Retail Sales and Use Tax
Description
Interstate transactions; Dual common/contractor carriers
Topic
Taxability of Persons and Transactions
Date Issued
03-29-1993
March 29, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letter of January 23, 1992 in which you seek correction of sales and use tax assessed to ************* (the Taxpayer), as the result of an audit for the period August, 1987 through July, 1990.
FACTS
The Taxpayer is engaged in the manufacture of shopping carts, hand held baskets and dollies and makes sales both within and without Virginia. The Taxpayer is contesting the application of tax to three specific sales transactions and the corresponding interest attributable to the those transactions. Additionally, the Taxpayer protests the application of penalty to this second generation audit on the basis that subsequent to the prior audit, the corporation changed ownership and management, hence, qualifying the current audit for first generation status.
In the first case, property was shipped out-of-state to the Taxpayer's customer located outside the state. In the other two cases, the property was shipped out-of-state via different motor carriers hired by the same purchaser. Regarding the latter, the Taxpayer contends that these sales were shipped by common carriers who hold Interstate Commerce Commission Certificates of Public Convenience and Necessity, and by virtue of holding such certification, qualify as common carriers under Virginia Regulation (VR) 630-10-24.3. As such, the Taxpayer further contends that both sales transactions are subject to exemption as sales delivered in interstate commerce pursuant to Va. Code § 58.1-608(A)(10)(d).
DETERMINATION
It is my understanding that the issue involving the first out-of-state transaction has been settled with the auditor and will be removed from the audit.
As to the second issue, VR 630-10-51, which interprets Va. Code §58.1-608(A)(10)(d), states that the tax does not apply to sales of tangible personal property in interstate commerce. However, a sale in interstate commerce occurs only when title or possession of the property passes to the purchaser outside of Virginia. The regulation further provides that all deliveries by common carrier, regardless of who contracts with the carrier are sales in interstate commerce exempt from the tax. Similarly, deliveries to the purchaser outside the state by an independent trucker or contract carrier hired by the seller are exempt from the tax; however, tangible personal property delivered out-of-state by contract carriers hired by the purchaser are not considered sales in interstate commerce.
The main issue in the instant case is whether the motor carriers hired by the Taxpayer's customer were acting as common or contract carriers regarding the pick up of the property from the Taxpayer's plant. The Taxpayer argues that motor carriers cannot act in the dual capacity of common/contract carriers based on the definitions provided under Va. Code §56-273 and based on their possession of ICC Certificates of Public Convenience and Necessity indicating such designation. The Taxpayer further stipulates that as common carriers, the delivery of the property is a sale in interstate commerce and thus exempt of the tax.
The statutory language contained within Va. Code §56-273 is not exclusive and does not infer that a motor carrier cannot operate in a dual capacity. Moreover, upon contacting the Interstate Commerce Commission, as well as, the Virginia State Corporation Commission, the department has learned that there are no regulations, policies and procedures that deny to any motor carrier the right to operate in a dual capacity. The ICC certification is designed as a regulatory tool used to ensure that motor carriers meet certain criteria for the purpose of operating within the statutory confines of the applicable laws. This certification does not dictate whether a motor carrier can operate in a dual capacity but rather that it operate within the proper guidelines pertaining to each designation.
The department has confirmed through the ICC that the motor carriers involved in this appeal have been certificated to operate in the dual capacity of common/contract carrier. Furthermore, based on the Virginia State Corporation Commission's records, the motor carriers in question are not registered as companies operating within Virginia. Therefore, it is my conclusion that the motor carriers were hired on a contract basis specifically to pick up the property on behalf of the out-of-state purchaser. The Taxpayer has not provided convincing evidence to prove otherwise and as such, the disputed sales do not qualify as sales delivered in interstate commerce.
In regard to the penalty issue, the fact that the corporation experienced a change in responsible officers and new management does not qualify the Taxpayer for first generation audit status. A review of the Taxpayer's audit history indicates that the Taxpayer maintained operations for the purpose of producing the same products and that the continuity of the corporation was not affected by the change in ownership. Further, the penalty in question was assessed due to the Taxpayer's failure to pay any use tax during the audit period; penalty was not assessed due to the untaxed sales contested in the Taxpayer's appeal. Therefore, I find no basis to deem this a "first" audit of the Taxpayer for purposes of the waiver of penalty.
Accordingly, the audit package will be returned to the ****************District Office for revision by the auditor to remove the first out-of-state transaction. The Taxpayer will receive a revised audit report and "Notice of Assessment" reflecting the revision and the recomputation of interest accrued to date which should be paid within 30 days to avoid the accrual of additional interest charges and collection activity.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5932J
Rulings of the Tax Commissioner