Did Virginia sales tax apply to memberships offering cash-back and service-related discounts but no tangible property?

Subject

Memberships conveying only cash-back and discount benefits were nontaxable

Plain-English summary

Virginia found that the memberships were not subject to retail sales and use tax because their benefits were intangible. The memberships offered higher cash-back percentages with a specified card and discounts involving healthcare, prescriptions, insurance premiums, vehicles, check printing, roadside assistance, travel, service agreements, and other services.

Access to the benefits came automatically with the chosen membership. Most importantly, membership did not entitle the customer to receive tangible personal property.

Because the described benefits were intangible, the retailer did not have to charge, collect, or remit Virginia retail sales and use tax on the membership sales.

What this means for you

• Tax treatment follows what the membership actually gives the customer.
• Cash-back opportunities and discounts on services were intangible under these facts.
• The ruling does not exempt separate purchases of taxable merchandise.
• Bundling tangible property or a taxable service can change the analysis.

Common questions

Did the membership include tangible personal property?

No. The ruling expressly relied on the absence of an entitlement to tangible property.

Were health and financial discounts treated as taxable property?

No. The Department deemed the described membership benefits intangible.

Did the retailer need to collect Virginia sales tax on the memberships?

No, based on the facts presented.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-603.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-167

Original ruling text

October 23, 2009

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf * (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to the sale of memberships that include additional benefits.

FACTS

The Taxpayer sells memberships to retail wholesale establishments. The memberships include additional features and benefits such as:

Higher percentages of cash back on purchases paid for with a specific card.

Healthcare related discounts such as percentages off of select medical services, prescription drugs and health insurance premiums.

Discounts on financial services (special pricing on automobiles, boats and recreational vehicles).

Discounts on personal services (check printing, roadside assistance, travel service and service agreements).

Other discounts may be available based on the type of membership purchased. Access to the discounts comes automatically with the membership, regardless of whether the member decides to take advantage of them. The prices of these features are not a part of the sales prices of the membership, but an additional expense to the

member.

RULING

Virginia Code § 58.1-603 imposes a tax "upon every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this Commonwealth any item or article of tangible personal property as defined in this chapter, or who leases or rents such property within this Commonwealth . . . ."

Virginia Code § 58.1-602 defines sale as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration ..."

In this instance, the memberships do not entitle the members to receive tangible personal property. Based on the information provided, the additional benefits associated with the purchase of the memberships are deem intangible benefits. Accordingly, the Taxpayer is not required to charge, collect or remit the Virginia retail sales and use tax on the sale of memberships that include additional benefits to its customers.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3326583378.P