Tax Type
Retail Sales and Use Tax
Description
Withdrawal of cellular phones from exempt inventory for free distribution
Topic
Taxability of Persons and Transactions
Date Issued
12-16-1996
December 16, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear*************
This is in reply to your letter In which you request a ruling regarding the application of the retail sales and use tax to sales of cellular telephones in conjunction with a telephone service contract. I apologize for the delay in responding to your letter.
FACTS
A company is a retailer of cellular telephones. In addition to selling cellular telephones, the company acts as an agent for independent providers of cellular telecommunication services. The company receives an activation commission from the telecommunication service provider (the "carrier") for each of its customers who signs a service contract with the carrier. The carrier can accept or reject applications for service processed through the company.
The company sells telephones at retail to the public for a nominal charge or provides them at no charge in anticipation of receiving activation commissions from the carrier.
You ask if sales and use tax should be collected and paid on the cellular telephones sold in connection with the service contract and, if so, what is the proper measure of the tax.
RU Ll NG
The department recently addressed this issue in Public Document (P.D.) 96-361 (12/09/96). The department ruled that the retailer should collect tax based on the sales price paid by the customer for the cellular telephone (i.e., the discounted price). Telephones that are withdrawn from a resale inventory and given to customers free of charge are taxable to the retailer based on the cost price of the telephones. The charges for the telephone service contract are not subject to the Virginia sales and use tax. I have enclosed a copy of the ruling for your review.
If you have any questions regarding this matter, you may contact********* of the department's Office of Tax Policy at*************
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner