Tax Type
Retail Sales and Use Tax
Description
Samples withdrawals from out-of-state inventory for free distribution by salesmen in Virginia
Topic
Property Subject to Tax
Date Issued
10-26-1998
October 26, 1998
Dear*********:
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to **** (the "Taxpayer”) for the period of January 1994 through December 1996. I apologize for the delay in responding to your letter.
FACTS The Taxpayer is an out-of-state food processor who sells on the wholesale level to grocery stores and distributors throughout the country, including Virginia. The Taxpayer does not maintain a physical location in Virginia but employs salespeople who reside and work in Virginia. The auditor assessed tax on samples the Taxpayer sends to its Virginia salespeople for distribution to their Virginia customers. The Taxpayer did not pay the tax on the samples when they were withdrawn from the out-of-state inventory. The Taxpayer believes that the samples are not taxable because: (i) they manufacture the sample products, (ii) the sample products represent a cost of doing business, and (iii) the samples are not being consumed by the final consumer, but are consumed by the distributor. The Taxpayer is requesting that the samples be removed from the audit.
A dealer's withdrawal from inventory is addressed in Code of Virginia § 58.1-623 which provides that:
In the present case, the Taxpayer withdrew samples from a tax exempt inventory for free distribution for promotional purposes. The fact that the Taxpayer is the manufacturer of the product being given away does not render such transaction an exempt withdrawal from inventory. See Public Document (P.D.) 94-45 (3/9/94), (copy enclosed). Likewise, the fact that the samples are being given to the distributors and not the final consumer has no bearing on the taxable nature of the transaction. Based on the above, the Taxpayer made a taxable use of the samples when they were withdrawn from inventory and sent to the Taxpayer's Virginia distributors. Since the sample products were not taxed upon withdrawal from the out-of-state inventory, such samples are subject to the Virginia use tax at the time they are delivered to the Virginia distributors.
Accordingly, the assessment is correct as issued. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest. If you should have any questions, please contact ****, Office of Tax Policy, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13635K
Dear*********:
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to **** (the "Taxpayer”) for the period of January 1994 through December 1996. I apologize for the delay in responding to your letter.
FACTS The Taxpayer is an out-of-state food processor who sells on the wholesale level to grocery stores and distributors throughout the country, including Virginia. The Taxpayer does not maintain a physical location in Virginia but employs salespeople who reside and work in Virginia. The auditor assessed tax on samples the Taxpayer sends to its Virginia salespeople for distribution to their Virginia customers. The Taxpayer did not pay the tax on the samples when they were withdrawn from the out-of-state inventory. The Taxpayer believes that the samples are not taxable because: (i) they manufacture the sample products, (ii) the sample products represent a cost of doing business, and (iii) the samples are not being consumed by the final consumer, but are consumed by the distributor. The Taxpayer is requesting that the samples be removed from the audit.
DETERMINATION
A dealer's withdrawal from inventory is addressed in Code of Virginia § 58.1-623 which provides that:
-
- If a taxpayer who gives a certificate under this section makes any use of the property other than an exempt use or retention, demonstration, or display while holding property for resale, distribution, or lease in the regular course of business, such use shall be deemed a taxable sale by the taxpayer as of the time the property or service is first used by him, and the cost of the property to him shall be deemed the sales price of such retail sale. (Emphasis added).
- If a taxpayer who gives a certificate under this section makes any use of the property other than an exempt use or retention, demonstration, or display while holding property for resale, distribution, or lease in the regular course of business, such use shall be deemed a taxable sale by the taxpayer as of the time the property or service is first used by him, and the cost of the property to him shall be deemed the sales price of such retail sale. (Emphasis added).
In the present case, the Taxpayer withdrew samples from a tax exempt inventory for free distribution for promotional purposes. The fact that the Taxpayer is the manufacturer of the product being given away does not render such transaction an exempt withdrawal from inventory. See Public Document (P.D.) 94-45 (3/9/94), (copy enclosed). Likewise, the fact that the samples are being given to the distributors and not the final consumer has no bearing on the taxable nature of the transaction. Based on the above, the Taxpayer made a taxable use of the samples when they were withdrawn from inventory and sent to the Taxpayer's Virginia distributors. Since the sample products were not taxed upon withdrawal from the out-of-state inventory, such samples are subject to the Virginia use tax at the time they are delivered to the Virginia distributors.
Accordingly, the assessment is correct as issued. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest. If you should have any questions, please contact ****, Office of Tax Policy, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13635K
Rulings of the Tax Commissioner