Tax Type
Retail Sales and Use Tax
Description
Motor vehicles; Core charges imposed in sale of automotive parts.
Topic
Taxability of Persons and Transactions
Date Issued
12-10-1997
December 10, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****************
This is in reply to your letter in which you requested a ruling on the application of the retail sales and use tax to sales of automobile parts when such sales include an automotive parts "core" charge. Your client (the "Taxpayer") sells automotive parts and merchandise through its retail stores.
FACTS
When a customer purchases automotive parts, depending on the part involved, the Taxpayer will charge the customer a "core" charge. The "core" is a term representative of a non-functioning used or worn automobile part which is being replaced. In the scenario presented by the Taxpayer, the core charge represents a worn battery being replaced by a customer. The Taxpayer questions the application of the tax as it relates to six separate transactions.
RULING
Generally
Code of Virginia § 58.1-603 imposes the sales tax on "the gross sales price of each item or article of tangible personal property when sold at retail or distributed in this Commonwealth." The term "sales price" is further defined in Code of Virginia § 58.1-602 to mean "The total amount for which tangible personal property or services are sold, including any services that are a part of the sale ....
Title 23 of the Virginia Administrative Code (VAC) 10-210-10 (copy enclosed), addresses adjustments, replacements and warranties and specifically provides that:
-
- When any taxable article is returned to the dealer for adjustment, replacement or exchange and the consumer is given a new article free or at a reduced price under a warranty or guarantee, the sales or use tax must be computed on the actual additional amount, if any, paid to the dealer for the new article.
With the foregoing in mind, l shall respond to the taxable status of each transaction in question.
Scenario 1: A customer purchases a new battery for $40.00, plus a core charge of $8.00, and returns a used battery (core) for $8.00.
As the sales price of the battery means the total price, and includes all charges in connection with the sale of the battery, the tax is computed on $48.00. However, the Taxpayer credits the transaction with the core exchange (used battery) for $8.00. The net effect of the sales transaction is the taxation of the $40.00 tendered for the battery.
Scenario 2: A customer purchases a new battery for $40.00, plus a core charge of $8.00.
The sales tax is computed on the total sales price of $48.00.
Scenario 3: A customer returns a used battery (core) for $8.00.
Sales tax is refunded to the customer based on the $8.00 charge.
Scenario 4: The customer has purchased a battery for $40.00 plus an $8.00 core charge, and determines that a different battery, carried in the Taxpayer's inventory, is preferred. The customer exchanges the battery for the same costs.
As the exchange does not warrant any additional charge for the different battery, the provisions of 23 VAC 10-210-10 would apply and no sales tax would be charged.
Scenario 5: Within a year of purchase, a customer's battery has become defective, and the customer returns the battery to the Taxpayer. The Taxpayer replaces the battery at no charge to the customer, as the Taxpayer has provided, within its pricing structure, a full warranty on batteries determined to be defective within one year.
Based on the provisions of 23 VAC 10-210-10 the sales tax is not applicable.
Scenario 6: A customer returns a used defective battery to the Taxpayer two and one-half years after purchase. Under a five year warranty the Taxpayer will prorate the original purchase price of the battery over the warranty life, if the battery is determined to be defective after one year. In this instance the customer is required to remit the prorated amount of $20.00 to secure a replacement battery. The original battery was purchased for $40.00, plus an $8.00 core charge.
As the actual additional amount based on the proration is $20.00, the customer is liable for payment of the sales tax on the $20.00 charge. See 23 VAC 10-210-10.
The same responses would apply to other similar transactions involving the purchase of automotive parts where core charges are implemented. I have enclosed other specific sections of the Code of Virginia and the current regulations, which may provide further assistance.
I trust that our response has been of assistance to you. If you should have any questions regarding this matter, please contact *******of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12833Q
Rulings of the Tax Commissioner