Were delivery charges for mobile-mixed concrete taxable, and what documentation supported exempt government sales?

Subject

Taxpayer request guidance on sales to government entities; Delivery charges

Plain-English summary

A mobile-mix concrete seller charged customers for delivery and argued that the charge merely offset otherwise unprofitable small loads. Virginia upheld the assessment. Under 23 VAC 10-210-360, the taxable amount for concrete produced in mixer trucks included the concrete price and connected service charges, including short-load, holding-time, and transportation charges. Because the concrete was not mixed until needed at the job site, separately stating delivery did not make any part of that charge exempt.

The Commissioner also explained how the seller could document exempt government sales. A federal, Virginia, or Virginia-local government purchase could qualify when made under an official purchase order showing direct billing to the agency or when the agency supplied a valid Form ST-12. Once the seller held Form ST-12, it did not need a new purchase order for every exempt sale to that agency. Approved federal GSA SmartPay cards could also support exemption when the account number showed that the federal government's credit was bound and the government was directly billed and paid the charge.

The Department did not excuse the assessed delivery-charge tax merely because it would be difficult to collect from past customers. Va. Code § 58.1-625 made transaction tax a debt from the purchaser to the dealer. The assessment remained due, although the Department allowed the taxpayer to establish a payment plan because of the claimed financial hardship.

What this means for you

• Separately stated delivery, short-load, holding-time, and similar transportation charges remained taxable when connected with job-site-mixed concrete.
• Government status alone was not enough; the seller needed qualifying direct billing, an official purchase order, Form ST-12, or an approved federal card account that established exemption.
• A dealer's inability to recover tax from customers did not erase its collection liability after the Department had explained the applicable rule.

Citations and references

• Va. Code § 58.1-609.1(4), exemption for property used or consumed by specified governments.
• Va. Code § 58.1-625, tax separately stated by a dealer and recoverable as a purchaser's debt.
• 23 VAC 10-210-360, taxable concrete-mixer-truck charges.
• 23 VAC 10-210-690, federal government purchase requirements.
• P.D. 82-65 and P.D. 93-236, concrete short-load, holding-time, and delivery charges; P.D. 03-94, GSA SmartPay cards.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-55

Original ruling text

May 10, 2007

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in reply to your letter in which you seek correction of the retail sales and use tax assessment issued to * ("Taxpayer") for the period June 2001 through March 2004. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer specializes in sales of small loads of concrete. The Taxpayer operates a mobile mix concrete operation that produces concrete on-site. The Taxpayer charges a delivery charge for the concrete and contends that the charge is an offset fee for loads of concrete that would otherwise be unprofitable to deliver. As a result of the Department's audit, the Taxpayer was assessed tax on its delivery charges. The Taxpayer seeks an abatement of the tax and contends that it is unable to collect the tax from its customers.

In addition, the Taxpayer seeks guidance on the documentation needed for sales to government entities.

DETERMINATION

Delivery Charges

Title 23 of the Virginia Administrative Code (VAC) 10-210-360 provides that the tax applies to retail sales of concrete produced in concrete mixer trucks. The amount on which the tax must be computed "includes the charge for the concrete as well as any other service charges connected with such sale. Examples of taxable service charges include 'short load,' 'holding time' charges, and any other transportation charges , regardless of whether such charges are separately stated." [Emphasis added].

The Taxpayer states that it sought advice from the local tax office regarding the taxable and nontaxable areas of its operations. The local office furnished the Taxpayer with a copy of Public Document 82-65 (5/13/82), which specifically explains the application of the tax to short load and holding time charges that are in addition to charges for the concrete mixed on-site. This same document further notes that when concrete is not mixed until needed at the job site, no portion of the delivery charges is exempt of the tax as separately stated transportation charges.

Public Document 82-65 is directly on point with respect to the charges held taxable in the Taxpayer's audit. This policy was confirmed in Public Document 93-236 (12/21/93). Based on the foregoing, I find that the auditor properly assessed tax on the charges at issue and there is no basis for an adjustment to the audit assessment.

Government Exemption Certificates

Virginia Code § 58.1-609.1 4 provides an exemption from the retail sales and use tax for "tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States." Title 23 VAC 10-210-690 states that federal government purchases are exempt provided "the purchases are pursuant to required official purchase orders to be paid out of public funds. Sales made without the required purchase orders and not paid for out of public funds are taxable."

Exempt sales may be made to the federal government, Virginia government agencies, and Virginia local government entities provided that either the purchase is made pursuant to an official government purchase order or the purchaser provides the Taxpayer with a valid government exemption certificate, Form ST-12. The purchase order must show a direct billing to the government agency. Once a Form ST-12 is furnished, the Taxpayer will not be required to receive an official purchase order each time that an exempt sale is made to the governmental agency.

Federal Government Credit Cards

The purchase by the federal government can be paid through direct billing to the agency or via an approved government credit card. Only those credit card purchases for which the credit of the federal government is bound and billings are sent directly to and paid by the government are exempt from the retail sales and use tax. The Department has agreed that federal government credit cards issued under the General Services Administration SmartPay Program may be used to make exempt purchases in accordance with the government exemption outlined in Va. Code § 58.1-609.1 4.

Through the credit card account number, the Department is able to determine the taxable or exempt status of purchases. Therefore, it is no longer necessary for federal government agencies to provide a purchase order or an exemption certificate to vendors when making exempt purchases using these cards. In Public Document 03-94 (12/12/03), the Department addresses the application of the retail sales and use tax to the four types of credit cards issued under the GSA SmartPay Program.

Uncollected Tax

The Taxpayer states that most of its customers are end users, and there is no effective way of collecting the tax on the delivery charges assessed in the Department's audit. While I appreciate the Taxpayer's situation, the Taxpayer was apprised of the proper method for collecting the tax on such charges as evidenced by the public document the Taxpayer received from the local tax office. The Taxpayer may proceed against those known purchasers for recovery of the taxes paid on the assessment, as the tax on a retail transaction is a legal debt of the purchaser. See Va. Code § 58.1-625 which provides:

The tax levied by this chapter shall be paid by the dealer; but the dealer shall separately state the amount of the tax and add such tax to the sales price or charge. Thereafter, such tax shall be a debt from the purchaser . . . to the dealer until paid and shall be recoverable at law in the same manner as other debts ....

CONCLUSION

The Department's assessment is correct and remains due and payable. The Taxpayer has indicated that the liability resulting from the audit could place an undue financial hardship on its business. Based on the information presented, I will allow the Taxpayer to establish a payment plan to pay the outstanding assessment. A representative from the Department's Collections Unit will contact you for the purpose of establishing the terms of the payment plan.

The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions regarding this matter, please contact * of the Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/56026Q