Tax Type
Retail Sales and Use Tax
Description
Shipping and handling Charges
Topic
Taxability of Persons and Transactions
Date Issued
11-08-1999
November 8, 1999
Re: Request for Ruling: Retail Sales and Use Tax
Dear****
This will reply to your request for a ruling concerning the application of sales and use tax to shipping and handling charges invoiced by ***** (the "Taxpayer'). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer received notice from the department that it was not computing sales tax on shipping and handling charges invoiced to customers. The Taxpayer has responded to the department's notice with a ruling request.
The Taxpayer is a multi-divisional corporation and uses a standard, preprinted form for all customer invoicing. The form contains a "shipping and handling' field; the Taxpayer states that this field is used exclusively to bill delivery charges such as postage or common carrier charges. Any charges for special handling, expedited delivery, transportation-in, etc., are listed separately on the invoice and are considered part of taxable sales. Based on the explanation of its billing practices provided to the department, the Taxpayer maintains that it is appropriate to consider amounts listed in the shipping and handling field of its invoices as nontaxable.
RULING
Code of Virginia Sec. 58.1-609.5(3) provides an exemption from retail sales and use tax for separately stated transportation charges. Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 (copy enclosed) interprets this exemption and states that when transportation charges are not separately stated, or the charges are combined with handling or other taxable charges, they become part of the sales price of the property and are subject to sales tax. The regulation further states in subsection B that transportation and delivery charges do not include handling charges.
While I understand that the charges listed on the Taxpayer's invoices may be transportation charges only, the use of the phrase "shipping and handling' suggests otherwise. The department's policy is clear that shipping charges must be separately stated on the invoice for the exemption to apply. By characterizing an exempt shipping charge as shipping and handling on its invoices, the Taxpayer has not separately stated the charge as required by law. Thus, the charge is includable in taxable sales.
I would also point out that by billing transportation charges as shipping and handling charges, the Taxpayer's customers are required to accrue use tax on the total charge if the Taxpayer has not billed Virginia sales tax on the transaction. The Taxpayer's customers would be unaware that the shipping and handling charge is only a shipping charge.
Based on the above, the Taxpayer may not exclude the shipping and handling charge from taxable sales unless the transportation charge is separately stated on the Taxpayer's invoices. If you have any questions, please call ***** in the Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/18470S
Re: Request for Ruling: Retail Sales and Use Tax
Dear****
This will reply to your request for a ruling concerning the application of sales and use tax to shipping and handling charges invoiced by ***** (the "Taxpayer'). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer received notice from the department that it was not computing sales tax on shipping and handling charges invoiced to customers. The Taxpayer has responded to the department's notice with a ruling request.
The Taxpayer is a multi-divisional corporation and uses a standard, preprinted form for all customer invoicing. The form contains a "shipping and handling' field; the Taxpayer states that this field is used exclusively to bill delivery charges such as postage or common carrier charges. Any charges for special handling, expedited delivery, transportation-in, etc., are listed separately on the invoice and are considered part of taxable sales. Based on the explanation of its billing practices provided to the department, the Taxpayer maintains that it is appropriate to consider amounts listed in the shipping and handling field of its invoices as nontaxable.
RULING
Code of Virginia Sec. 58.1-609.5(3) provides an exemption from retail sales and use tax for separately stated transportation charges. Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 (copy enclosed) interprets this exemption and states that when transportation charges are not separately stated, or the charges are combined with handling or other taxable charges, they become part of the sales price of the property and are subject to sales tax. The regulation further states in subsection B that transportation and delivery charges do not include handling charges.
While I understand that the charges listed on the Taxpayer's invoices may be transportation charges only, the use of the phrase "shipping and handling' suggests otherwise. The department's policy is clear that shipping charges must be separately stated on the invoice for the exemption to apply. By characterizing an exempt shipping charge as shipping and handling on its invoices, the Taxpayer has not separately stated the charge as required by law. Thus, the charge is includable in taxable sales.
I would also point out that by billing transportation charges as shipping and handling charges, the Taxpayer's customers are required to accrue use tax on the total charge if the Taxpayer has not billed Virginia sales tax on the transaction. The Taxpayer's customers would be unaware that the shipping and handling charge is only a shipping charge.
Based on the above, the Taxpayer may not exclude the shipping and handling charge from taxable sales unless the transportation charge is separately stated on the Taxpayer's invoices. If you have any questions, please call ***** in the Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/18470S
Rulings of the Tax Commissioner