Tax Type
Retail Sales and Use Tax
Description
Delivery charges and packing costs; Transportation costs.
Topic
Basis of Tax
Date Issued
10-31-1997
October 31, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This is in reply to your letter in which you seek correction of sales and use tax assessed to *******("Taxpayer") for the period November 1993 through September 1996. Additionally, you asked whether the taxpayer's subsidiary must file a separate, amended return for the tax years ending May 26, 1993 through May 26, 1995. I apologize for the delay in responding to your letter.
FACTS
The taxpayer is a retailer of infant/toddler products located in California. It solicits orders from Virginia customers via catalogs sent through the mail. Merchandise is shipped to Virginia customers by common carrier.
The taxpayer owned a Virginia subsidiary during part of the audit period. The subsidiary, **** made retail sales of children's clothing and accessories. The subsidiary was sold effective December 30, 1994.
From November 1993 through December 1994, the taxpayer was registered as a Virginia dealer and remitted use tax for sales made to Virginia customers. After selling its subsidiary, the taxpayer canceled its registration.
The taxpayer did not collect use tax for sales made after the cancellation of its registration. The department's auditor assessed use tax on such sales because the taxpayer was included in a consolidated Virginia corporate income tax return with its subsidiary for the tax year ending May 26, 1995. For the entire period under audit, the taxpayer failed to separately state transportation charges on customer invoices. As a result, the auditor also assessed use tax on charges for transportation.
The taxpayer contests the assessment, claiming there was insufficient nexus with Virginia for it to be assessed with use tax.
DETERMINATION
Use Tax Liability under the Taxpayer's Certificate of Registration
From November 1993 through December 1994, the taxpayer was a registered dealer with the department and remitted use tax to the state. By voluntarily registering with the department, the taxpayer consented to the jurisdiction of the state and agreed to remit the proper amount of use tax required under Virginia law. See Public Document 93-141. Nexus with Virginia is not an issue when a taxpayer voluntarily registers to collect use tax.
The use tax does not apply to transportation charges added to a taxable sale provided these charges are separately stated on customer invoices. Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 (copy enclosed). From November 1993 through December 1994, the taxpayer did not separately state transportation charges on its invoices for sales made to Virginia customers. The auditor was correct in assessing use tax on such charges.
Because sufficient documentation was not available for the entire audit period, the auditor estimated transportation charges to be 16% of a portion of the gross sales figure reported on the taxpayer's Virginia corporate income tax return. The percentage was based on actual experience for a period where sales data was available.
However, the auditor had sales data by month for the period November 1993 through December 1994. The assessment will be revised to reflect actual sales for this period. Transportation charges will be calculated at 16% of each month's sales for the period November 1993 through December 1994 unless the taxpayer submits actual transportation charges to the department.
Use Tax Liability Subsequent to Cancellation of Registration
The taxpayer canceled its registration effective January 1, 1995. Thus, the taxpayer can only be assessed with use tax on sales made after 1994 if, under Code of Virginia § 58.1-612, the taxpayer is a dealer and had sufficient activity within the state.
Under Code of Virginia § 58.1-612 (copy enclosed), the retail sales and use tax is collectible from all persons who are dealers. A dealer is defined in that section and includes every person who "sells at retail . . . tangible personal property." The taxpayer clearly qualifies as a "dealer" under Code of Virginia § 58.1-612.
The taxpayer must also have sufficient activity within Virginia as set out in Code of Virginia § 58.1-612(C) before it can be assessed with a use tax. The facts presented indicate that sufficient nexus did not exist with Virginia for the taxpayer to be assessed with tax. In this case, the taxpayer maintained no office, warehouse or other place of business in Virginia. The taxpayer did not solicit business in Virginia through employees, independent contractors, agents, or other representatives. Merchandise was shipped to Virginia customers by common carrier from the taxpayer's warehouse in .
The taxpayer was assessed with tax on transportation charges and sales made after 1994 because the taxpayer was included in a consolidated Virginia corporate income tax return with its subsidiary for the tax year ending May 26, 1995. This act by itself does not confer nexus under Code of Virginia § 58.1-612(C) subjecting a merchant to a use tax assessment.
For these reasons, that part of the assessment relating to use tax on transportation charges and sales made after 1994 will be abated.
The audit will be revised to remove use tax on transportation charges and sales made after 1994. The taxpayer will be given thirty days to submit actual transportation charges for the period November 1993 through December 1994. Shortly thereafter, the taxpayer will receive an updated bill with interest accrued to date. The bill should be paid within sixty days to avoid the accrual of additional interest.
Filing of Corporate Tax Returns for 1993 through 1995
Finally, you state that the taxpayer was not subject to corporate income tax and should not have been included in a consolidated return with its subsidiary for tax years ending May 26, 1993 through May 26, 1995. Instead, you assert that the subsidiary should have filed a separate return as it was not affiliated with any other corporation subject to Virginia corporate income taxes. You state that Virginia tax liability would have been the same if separate returns were filed by the taxpayer and its subsidiary. As a result, you ask that the department not require the taxpayer's subsidiary to file a separate, amended return for these years.
Unfortunately, if the taxpayer was incorrectly included in a consolidated return, the subsidiary must file a separate, amended return for the years in question.
If you have any questions, please call **** in the Office of Tax Policy at ******* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12023C
Rulings of the Tax Commissioner