Did every discount advertisement mentioning sales tax violate Virginia's prohibition on dealers advertising that they would absorb the tax?

Subject

Dealer offers a discount, reduction or eradication of the sales tax as incentive

Plain-English summary

Virginia clarified that not every discount advertisement mentioning sales tax violated the dealer-absorption prohibition. An ad could state that sales tax still applied to the discounted price.

Tax Bulletin 07-5 had broadly said any price-reduction promotion mentioning sales tax would be treated as indirect absorption. The Department acknowledged that wording could incorrectly reach an ordinary 5% discount ad that expressly told customers the 5% sales tax would still be charged.

The intended prohibition targeted promotions that used reduction or elimination of the sales tax itself as the incentive to buy. A price discount remained different when the dealer continued to calculate and collect tax on the discounted sales price.

What this means for you

• Describe a promotion as a price discount, not as tax-free or tax-absorbed treatment.
• State clearly when sales tax still applies to the discounted price.
• Do not use reduction or elimination of tax as the advertised purchase incentive unless current law expressly permits it.
• Review the complete current advertising rule before launching a campaign.

Common questions

Could an ad say "sales tax still applies"? Yes. Virginia said that assurance did not violate the prohibition.

What conduct was prohibited? Advertising tax reduction or eradication as the incentive for the purchase.

Did Virginia acknowledge the bulletin was unclear? Yes. It said one statement was overly broad and would not be applied to every discount ad mentioning tax.

Citations and references

• Va. Code § 58.1-626.
• Virginia Tax Bulletin 07-5 (April 9, 2007), as clarified by this letter.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-123

Original ruling text

August 3, 2007

Dear *:

Thank you for your recent comments concerning Tax Bulletin 07-5, issued on April 9, 2007. You expressed concern that one provision in the bulletin applies the provisions of Va. Code § 58.1-626 too broadly. You have asked that a follow-up Tax Bulletin be released, which clarifies the proper policy with respect to the prohibition on dealer absorption.

As you know, Tax Bulletin 07-5 provides guidance concerning Virginia's statutory prohibition against advertisements for the absorption of sales tax. Va. Code § 58.1-626 prohibits any person from "advertising or holding out to the public, directly or indirectly, that he will absorb all or any part of the sales or use tax, or that he will relieve the purchaser, consumer, or lessee of the payment of all or any part of such tax." In interpreting this provision, one portion of the Tax Bulletin reads as follows: "As Virginia Code § 58.1-626 prohibits any person from advertising indirectly an intention to absorb all or any part of the sales or use tax, any promotion that offers to reduce the sales price of an item and mentions the sales tax in connection with that reduction will be deemed an indirect attempt to circumvent Virginia Code § 58.1-626. Accordingly, such an advertisement will be deemed to violate the provisions against dealer absorption." (emphasis added). You are concerned that this provision is overly broad, and thus could be interpreted to include certain advertisements that mention the sales tax in their discount offers, but are not intended to provide an incentive for avoidance of the retail sales and use tax. The example below presents such a situation:

Example : A furniture store distributes circulars offering a discount of 5% on all mattresses. The advertisement provides as follows: All items purchased pursuant to this sale will still be subject to the 5% sales tax."

This example advertises a discount to its customers, and mentions the sales tax in connection with the discount, thus, you believe it could be interpreted as a violation of Va. Code § 58.1-626, based on the language contained in the Tax Bulletin. You believe such an interpretation would be an incorrect result.

We recognize that the language in the Tax Bulletin could be construed to prohibit advertisements like that provided in the example above, and agree that this interpretation would incorrectly interpret Va. Code § 58.1-626. We assure you that TAX did not intend this result when it drafted Tax Bulletin 07-5. Our intention, in drafting this Tax Bulletin, was to address situations in which a dealer offers a discount, and in connection therewith, offers a reduction or eradication of the sales tax as incentive for the purchase. Advertisements for discounts in which the only time the sales tax is mentioned is to assure customers that the sales tax is still applicable do not violate Va. Code § 58.1-626. Although that particular statement of the Tax Bulletin was overly broad, TAX will not interpret Virginia's dealer absorption prohibition to apply to every advertisement that offers a discount and mentions the sales tax in connection with such a discount.

Thank you for bringing this matter to our attention. We hope that this letter will alleviate your concern that the provisions of Va. Code § 58.1-626 will be broadly applied to all discount advertisements that mention the sales tax. If you have additional concerns, please do not hesitate to voice them to me.

Sincerely,

Janie E. Bowen

Tax Commissioner