How did Virginia sales tax apply to automotive core charges, later core returns, exchanges, and partial refunds?

Subject

Sales tax application to retail sales, refunds and exchanges involving core charges

Plain-English summary

Virginia required tax on every automotive core charge when the part was sold, then allowed the related tax to be refunded when the customer received a core credit or other refund. A core charge was an additional amount imposed when the customer did not immediately exchange the worn or nonfunctioning part.

The ruling addressed several common transactions:

• A full refund of the part and core charge included a full sales-tax refund.
• A partial refund allowed a proportional tax refund on the refunded part price and related core charge.
• A later return of the old core allowed refund of the tax associated with the core credit.
• In an exchange, the initial taxable price included the core charge and was reduced when the core was returned.

For example, a $50 alternator plus a $15 core charge was initially taxed at $65. Returning the old alternator for a $15 credit reduced the taxable amount to $50.

What this means for you

• Charge tax on the core amount at the initial sale.
• Refund the corresponding tax when the customer receives a core refund.
• Partial part refunds require a proportional adjustment.
• Keep records connecting the core return or exchange to the original transaction.

Common questions

Are any core charges exempt when first imposed?

No. The ruling said all core charges were subject to Virginia sales tax.

Can tax be refunded if the customer returns the core later?

Yes. The retailer may refund the tax associated with the refunded core charge.

What regulation governed returned goods?

23 VAC 10-210-3080.

Citations and references

• 23 VAC 10-210-3080.
• Virginia Public Document 97-475.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-189

Original ruling text

August 26, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which your request a ruling in regard to the application of the retail sales and use tax to core charges made by * (the Taxpayer).

FACTS

The Taxpayer is a retailer of automotive parts and accessories. It seeks clarification of the sales tax application to retail sales, refunds and exchanges involving core charges.

RULING

An explanation of the basis for taxing core charges is set out in Public Document (P.D.) 97-475 (12/10/97). In that ruling, a dealer sold automotive parts and depending on the item sold, it would also charge the customer a core charge. The core charge represents an additional charge should the customer not exchange the non-functioning used or worn automotive part for the new part purchased. The Tax Commissioner determined that core charges are subject to taxation because they are part of the sales price of the item sold. The Taxpayer submits several questions that are set out and addressed below.

Question 1

Are core charges subject to sales tax? If so, does this apply to all core charges or are some exempt?

Yes. All core charges are subject to the Virginia retail sales and use tax in accordance with P.D. 97-475.

Question 2

In the event of a full refund of a part and its related core charge (i.e., an undamaged return), is the sales tax refunded on the, core charge?

Yes. A full refund of the tax is appropriate in this instance.

Question 3

In the event of a partial refund of a part (i.e., a prorated battery or damaged return) and its related core charge, is the sales tax refunded on the core charge.

Yes. A tax refund is allowed to the extent of the partially refunded sales price of the part plus the related core charge. See Title 23 of the Virginia Administrative Code 10-210-3080 on returned goods.

Question 4

In the event of a core charge refund only, is the sales tax refunded? For example, if a customer neglects to bring a core in when purchasing a part but brings it in at a later date and is then refunded for his core, is the sales tax refunded?

The answer is "yes" to both questions.

Question 5

In the event of a core exchange, is sales tax refunded on the returned core? For example, if a customer purchases an alternator for $50 plus a $15 core charge and returns a core and receives a $15 credit, is the taxable amount $65 (i.e., $50 + $15) or $50 (i.e., $50 +$15-$15) ?

Yes. The taxable amount in your example is initially $65; but with the return of the bad alternator or core, the taxable amount drops to $50.

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 regulation and public document 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 ruling, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Acting Tax Commissioner

AR/1-4363871565.R