Were a cancelled log-home sale and a fee for changing the delivery date subject to Virginia sales tax?

Subject

Assessment adjusted to remove the tax assessed on the cancelled contract/delivery charges

Plain-English summary

Virginia removed a cancelled log-home contract from the assessment but kept tax on charges for changing delivery dates. The manufacturer documented that one audited sale had been cancelled, so the Department removed that contract.

The delivery-date change charge had a different result. Customers paid it under an addendum when they asked to reschedule delivery, and the amount varied with how close the request was to the original date. The manufacturer said it was an exempt transportation charge.

Virginia found that the fee compensated the seller for extra administrative time and effort, not for delivering property from seller to buyer. It therefore formed part of the log home's taxable sales price, and the tax on those charges remained in the audit.

What this means for you

• A documented cancelled transaction should not remain in taxable sales.
• Calling a fee delivery-related does not make it an exempt transportation charge.
• A rescheduling fee that pays for administrative work connected with a sale can be included in taxable sales price.
• Contract addenda and the seller's own description of what a charge covers are important evidence.

Common questions

Q: Why was the cancelled contract removed?
A: The manufacturer supplied a contract-cancellation letter establishing that the sale did not occur.

Q: Why was the delivery-date change fee taxable?
A: It compensated the seller for administrative rescheduling work rather than transportation from the seller to the purchaser.

Q: Does separately stating a charge make it exempt?
A: Not by itself. The charge must actually fit an exclusion from sales price; Virginia found that this one did not.

Citations and references

• Va. Code § 58.1-609.5 3.
• Va. Code § 58.1-602.
• 23 VAC 10-210-6000 B.
• 23 VAC 10-210-4000.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-93

Original ruling text

June 18, 2008

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 * (the "Taxpayer") for the period October 2003 through September 2006. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer operates as a manufacturer of log homes. The Taxpayer and its customers enter into contracts for the purchase, ordering and delivery of log homes to the customers' designated site. As a result of the Department's audit, the Taxpayer was assessed tax on an unremitted sale and on the charges resulting from a Change In Delivery Date addendum to the original contract. The Taxpayer provides evidence that the unremitted sale was a cancelled contract and should therefore be removed from the assessment. With regard to the Change In Delivery Date addendum, the Taxpayer maintains that the charges are transportation charges and separately stated for each log home.

DETERMINATION

Unremitted Sale

Based on a review of the contract cancellation letter, contract number 0603147 will be removed from the assessment.

Change In Delivery Date Charges

If a customer wants to change the delivery date of their log home, the Taxpayer creates a Change In Delivery Date Addendum to the original contract. The addendum lists a delivery date change charge schedule that is based on the number of days prior to the original delivery date the customer requests the change. The charges are to compensate the Taxpayer for the additional administrative time and effort involved in rescheduling the delivery of a log home.

The Taxpayer maintains that the additional charges for the change in delivery date are transportation charges and are exempt pursuant to Va. Code § 58.1-609.5 3. Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 B defines transportation and delivery charges as "charges for delivery from the seller to the purchaser, commonly known as 'transportation-out.'"

Title 23 VAC 10-210-4000 defines sales price as "the total amount for which tangible personal property or taxable services are sold and includes any services in connection with such sale." The only amounts excluded from the term "sales price" are those specifically stated in Virginia Code § 58.1-602. Based on the Taxpayer's description of the charges in its appeal letter, I cannot agree that the charges at issue represent transportation or delivery charges. The change in delivery date charge is an addendum to the original contract for purchase of the log home. The charge is not for transportation, but rather compensation for additional administrative time and effort. Therefore, the change in delivery date charge is considered part of the sale price of the log home. There is no deduction from "sales price" for change in delivery date charges. Therefore, the tax was properly assessed on the change in delivery date charges.

CONCLUSION

Based on the above determination, the assessment will be adjusted to remove the tax assessed on the cancelled contract. An updated bill with interest accrued to date will be sent to the Taxpayer. No additional interest will accrue provided the bill is paid within 30 days of the date on the bill.

The Code of Virginia and regulation sections 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 about this determination, you may contact the Office of Tax Policy, Appeals and Rulings at *.

Sincerely,

Janie E. Bowen

Tax Commissioner

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