Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments, multi-level marketing firm that sells nutritional and health care products
Topic
Collection of Delinquent Tax
Date Issued
07-27-1998
July 27, 1998
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear **********************
This is in reply to your letter of March 20, 1998, in which you request a redetermination regarding sales and use tax assessed to ********* (the "Taxpayer'), for the period November 1993 through September 1996.
FACTS
The Taxpayer is a multi-level marketing firm that sells nutritional and health care products through a network of distributors located in Virginia, the United States, and worldwide. The Taxpayer collects and remits the sales tax on behalf of its distributors in Virginia who resell the products to their customers in Virginia. The Taxpayer collects the tax on the suggested retail selling price of the products sold to the distributors without deduction for products purchased for personal consumption or for discounts given to customers by the distributors.
The Taxpayer was assessed tax on handling charges in connection with the sale of products to the distributors. The Taxpayer disputes the tax and maintains that the tax has been properly collected in accordance with a department agreement. The Taxpayer further contends the handling charges are not taxable as part of the sales price of the products sold to the distributors.
DETERMINATION
The Taxpayer sells products to its distributors at wholesale prices but computes the tax on the suggested retail selling price of the products. The Taxpayer contends the handling charges are collected in addition to the wholesale price of the products. The handling charges are not passed on and collected by the distributors from their customers. Because of this, the Taxpayer believes it is inappropriate to include the handling charges when computing the tax based on the suggested retail selling price.
Code of Virginia § 58.1-602 defines sales price, in part, as "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) 10-210-4000, copy enclosed, addresses the issue of sales price in detail. The regulation provides certain exclusions from the calculation of the sales price, but does not exclude handling charges.
While handling charges are not defined in the statute or the regulation, I would consider handling charges as those handling activities which must be completed before the packaged item is placed in transportation, such as, selection, stock handling, scanning, packing, metering, and loading goods for shipment.
The Taxpayer must perform handling activities in order to fill the sales orders of its distributors. The Taxpayer performs such activities in direct association with the sale of tangible personal property. As such, handling activities are considered services in connection with a sale. The charge for such activities is not excluded from the definition of sales price by statute or regulation. The charge, therefore, must be taxed as part of the sales price of tangible personal property, or in this case, the suggested retail selling price of the products sold to the distributors. This is true regardless of the fact that the distributors purchase the products at wholesale prices from the Taxpayer or that the handling charges are not collected by the distributors from their customers.
The Taxpayer's willingness to voluntarily collect and remit the sales tax on behalf of its distributors is notable. By voluntarily registering with the department, the Taxpayer consented to the jurisdiction of the state and agreed to remit the proper amount of sales tax required under the Virginia retail sales and use tax laws, regulations and policies. The department's policy with respect to handling charges is established and longstanding. As such, the tax was properly assessed on the handling charges and I do not find basis to change the determination set forth in my letter of December 5, 1997.
As I stated in my letter of December 5, 1997, the letter from the department to the Taxpayer dated February 1, 1985 did not represent a departmental agreement with respect to the collection of the tax by a multi-level marketer on behalf of its distributors. The letter served as the department's acknowledgment of receipt of the Taxpayer's request for registration on a consolidated basis. It is unfortunate the Taxpayer misinterpreted the acknowledgment letter as an agreement with the department.
With regard to tax collected on products that may have been purchased by distributors for personal use and discounting of products by the distributors, the Taxpayer may request a refund of such tax upon providing documentation of such transactions indicating the overpayment of the tax. Title 23 VAC 10-210-3040, copy enclosed, limits requests for refunds to a three year period.
The Taxpayer is requested to formally enter an agreement by signing the department's agreement which has been previously provided. The agreement and any refund documentation should be returned to ***** in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. If you have additional questions, do not hesitate to contact ***** at ***** .
Sincerely,
Rulings of the Tax Commissioner