Tax Type
Retail Sales and Use Tax
Description
Application of sales and use tax; Computers, services, and software; "Dealer' defined
Topic
Taxability of Persons and Transactions
Date Issued
12-15-1995
December 15, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************:
This will reply to your letter of June 21, 1995, in which you seek correction of a retail sales and use tax assessment for**************** (the "Taxpayer") for the period May 1989 through March 1995.
FACTS
The Taxpayer is a sole proprietorship engaged in the business of writing customized software programs and performing on-site computer support to its software customers. As part of its service, the Taxpayer finds price breaks on computer hardware and software from mail order firms for some of its customers and orders the items by telephone. The order is often placed using the Taxpayer's credit card, and the customer reimburses the Taxpayer for the cost of the item. A markup is not charged by the Taxpayer, and the item is often shipped directly to the customer.
The department conducted an audit and assessed tax on the untaxed purchases of items made on the Taxpayer's credit card and "passed through" to its customers. The Taxpayer protests the assessment and also objects to the assumptions used by the auditor in computing the tax liabilities for prior years.
DETERMINATION
Definition of Dealer
Under Code of Virginia § 58.1-612, the sales tax is collectible from all persons who are dealers. That same section defines the term "dealer" and includes every person who "sells at retail, or who offers to sell at retail, or who has in this possession for sale at retail, or for use, consumption, or distribution...tangible personal property."
You contend that the Taxpayer is not making retail sales and, therefore, cannot be classified as a dealer responsible for collecting the tax.
Code of Virginia § 58.1-602 defines the term "retail sale" to mean a sale to any person for any purpose other than for resale. Under Code of Virginia § 58.1-602, a sale is defined as any transfer of title or possession, or both, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration. There is no requirement that the transaction be for profit or a seller "mark up" the price in order for a retail sale to occur.
In this case, the Taxpayer purchased computer hardware and software from mail order companies on its credit card, and its credit was bound. The customers did not purchase the items from the mail order companies. The items purchased by the Taxpayer were not for its use but, instead, were sold by the Taxpayer to its customers for consideration (reimbursement of the cost of the items). The sales were not for resale, as the customers were the end users of the items sold. Because the sales were not for resale, the Taxpayer was making retail sales.
Accordingly, the auditor correctly assessed tax based on the Taxpayer's activities as a dealer. Furthermore, the Taxpayer must register with the department as a dealer and collect and remit tax on sales of tangible personal property to its customers.
Computation of tax liability
The Taxpayer challenges the methods used by the auditor in computing the tax liability for the audit period. Based on the information provided in the Taxpayer's letter and a review of the audit papers, the auditor based the assessment on the best information available and correctly applied standard audit procedures.
However, if documentation is provided indicating customers paid Virginia tax on items purchased from the Taxpayer, a credit will be allowed against the assessment for the taxes paid on those purchases. The information should be sent within 60 days to*************, Audit Supervisor, *************** District Office,************************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9954F
Rulings of the Tax Commissioner