Was a brick maker's separately stated minimum-load charge an exempt delivery charge or a taxable service?

Subject

Separately stated minimum-load charge was exempt transportation

Plain-English summary

Virginia abated and refunded sales tax on the brick manufacturer's minimum-load charges. Its third-party trucking company billed for a full load regardless of how much brick the truck carried.

Freight embedded in brick prices did not always cover the actual carrier bill, especially after shipping and fuel costs increased. The manufacturer separately billed a minimum-load amount to recover that difference.

Virginia found the charge was additional transportation or delivery, not handling or another taxable service. Because it was separately stated, the transportation exemption applied. The paid assessment was refunded with interest.

What this means for you

• A surcharge can qualify as transportation when it genuinely recovers seller-to-customer delivery cost.
• Separate statement on the invoice was essential to the exemption.
• The name "minimum load" did not control; the actual function of the charge did.
• Handling and freight-in charges remain outside this transportation-out rule.

Common questions

Why did the charge exist?

The carrier charged for full-load capacity, while freight already included in brick prices was sometimes lower than the actual bill.

Was the charge taxable because some invoices also listed transportation separately?

No. Virginia found the minimum-load amount itself was an add-on delivery charge under the stated facts.

Citations and references

• Va. Code §§ 58.1-609.5(3) and 58.1-1833(A).
• 23 VAC 10-210-6000(B).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-76

Original ruling text

May 26, 2009

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

Dear *:

This is in response to your letter in which you request correction of a retail sales and use tax assessment issued to * (the Taxpayer) for the period December 2004 through November 2007.

FACTS

The Taxpayer manufactures brick. It separately states charges for minimum loads but does not collect sales tax on them. As a result of an audit, the Taxpayer was assessed sales tax on minimum load charges on the basis that such charges constitute taxable services in connection with the sale of tangible personal property rather than exempt transportation charges in accordance with Va. Code § 58.1-609.5 3.

DETERMINATION

The Taxpayer contends the minimum load charges are exempt transportation charges. A third party trucking company delivers the Taxpayer's brick to customers and charges on a full load basis no matter how much is actually carried. The trucking company's charge is normally higher than the freight amount included in the cost of brick prices because of increases in the cost of shipping and fuel. Accordingly, the Taxpayer charges a minimum load charge to recover the difference in the actual freight bill and the amount of freight included in the cost of the brick. In this manner, the Taxpayer is able to recover the freight costs of a full load.

Although the invoices presented with the appeal show separately stated charges for brick, tax, and a minimum load charge, I understand the Taxpayer has instances in which both "transportation" and "minimum load charges" are separately stated on the invoices.

Virginia Code § 58.1-609.5 3 exempts separately stated transportation charges from the retail sales and use tax. Title 23 of the Virginia Administrative Code 10-210-6000 B defines "transportation" or "delivery" charges as follows:

As used in this section the terms "transportation" and "delivery charges" mean charges for delivery from the seller to the purchaser, commonly known as "transportation-out," and include postage or common carrier charges. Transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relative to purchases for resale, nor do they include handling charges.

The minimum load charges at issue are not handling charges or other taxable services in connection with a sale. Rather, based on the facts provided, I find that the minimum load charges are add-on transportation or delivery charges. Because they are separately stated, the minimum load charges are exempt pursuant to Va. Code § 58.1-609.5 3.

CONCLUSION

Based on this determination, the contested assessment (*) will be abated. Because it is paid, such assessment will be refunded with interest in accordance with Va. Code § 58.1-1833 A.

The Code of Virginia section and regulation 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 determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3014145529.R