Tax Type
Retail Sales and Use Tax
Description
Application for refund; Refund to customer
Topic
Taxpayers' Remedies
Date Issued
07-11-1997
July 11, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear***********
This is in reply to your letter in which you seek a ruling request and a refund regarding the application of the sales and use tax to **********(the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer sells individually packaged snack food items from unattended cardboard displays known as "honor boxes". These honor boxes are stocked with snack food items and placed in offices and businesses. Customers purchase an item by depositing payment in the honor box.
The Taxpayer, for a number of years, paid 4.5% sales tax on the gross sales from honor boxes. The Taxpayer, however, believes that honor box sales should be viewed similarly to vending machine sales because it is impractical to collect the tax on the retail sales transactions. The Taxpayer believes that the tax should apply to honor box sales as prescribed for vending machine sales under Code of Virginia § 58.1-614.
Additionally, the Taxpayer requests a refund for the period October 1990 through August 1996 of the difference in tax previously paid and the amount due had the tax been remitted at 5.5% of the cost price of the items sold via the honor boxes.
RULING
Application of the Tax
Code of Virginia § 58.1-614 provides that "whenever a dealer makes sales...through vending machines, or in any other manner making collection of the tax impractical...such dealer shall be required to report his wholesale purchases for sale at retail" and shall be required to remit the tax based on 5.5% (4.5% state and 1% local) of such wholesale purchases. Emphasis added.
I agree with the Taxpayer's contention that it is impractical to collect the tax on retail sales made via honor boxes as the boxes are unattended and purchases are made by customers based on an honor system. The Taxpayer does not issue invoices or receipts, therefore, it is not possible to separately state the tax as required under Code of Virginia § 58.1-625. Accordingly, the sales tax reporting requirements for vending machine retailers is applicable to the Taxpayer.
Should the Taxpayer manufacture any of the items sold from its honor boxes, the term "wholesale purchases" should be considered the cost of the goods manufactured. "Cost price" is defined in Code of Virginia § 58.1-602 to mean "the actual cost of an item or article of tangible personal property computed in the same manner as the sales price as defined in this section without any deductions therefrom on account of the cost of materials used, labor, or service costs, transportation charges or any expenses whatsoever.
In cases in which dealers are unable to maintain records of wholesale purchases, Code of Virginia § 58.1-614 also permits the Tax Commissioner to authorize alternative methods of collecting the tax. Upon written request to and authorization by the Tax Commissioner, a dealer may compute the tax based upon the gross receipt' s which takes into account the inclusion of the 4.5% sales tax. See Title 23 of the Virginia Administrative Code (VAC) 10-210-6041 (formerly Virginia Regulation 630-10-110).
Refund Request
Title 23 VAC 10-210-3040 provides that a dealer may request a refund of taxes erroneously or illegally collected. The dealer must show that the tax erroneously or illegally collected was paid by him and not passed on to the consumer, or the tax was collected from the consumer as tax and subsequently refunded to the consumer. Refunds cannot be authorized unless the request is made within three years from the due date of the return. Under the regulation, l am unable to authorize a refund for any periods prior to October 1993.
Further, the Taxpayer remitted tax from gross sales receipts paid by honor box customers which included the tax. Since the tax was paid by the customers, the Taxpayer must refund the tax to such customers in order to receive a refund of the tax from the department. The Taxpayer has not, however, provided a method for refunding the tax to customers. Therefore, l am unable to authorize a refund for the periods October 1993 through August 1996. The department previously addressed a similar situation in Public Document (P.D.) 93-78 (3/22/93). The Tax Commissioner denied a refund of tax erroneously remitted from gross sales receipts because the taxpayer could not show that the tax was refunded to out-of-state customers.
I have enclosed copies of the cited statutes, regulations, and P.D. 93-78 for your information. If you have additional questions, please contact *****at**********
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12156J
Rulings of the Tax Commissioner