Did a Virginia steamship agent owe sales tax on commission income and a per-diem invoice involving shipping containers?

Subject

Limited record did not show a taxable container transaction by steamship agent

Plain-English summary

Virginia found no evidence on the limited facts that the steamship agent was liable for sales or use tax on a container-related transaction. The Virginia subsidiary performed administrative and logistical services for its foreign parent and was paid on commission.

During an audit, Virginia found an invoice charging a fixed daily per diem for a "unit." The taxpayer acknowledged demurrage and per-diem income but said those amounts were part of its service commission.

The invoice did not establish whether the charge related to tangible personal property. The record also did not show that the agent owned any property, sold or leased it, or was responsible for collecting tax on property owned, leased, or used by the parent. Virginia therefore found no taxable transaction for which the agent could be assessed on the information presented.

The ruling was deliberately narrow. It directed the taxpayer to review Public Document 10-11 concerning demurrage and detention charges and stated that new or changed facts could produce a different result.

What this means for you

• Calling revenue a commission, demurrage, or per diem does not settle sales-tax treatment.
• The analysis turns on what property is involved, who owns or leases it, and who has collection responsibility.
• An ambiguous invoice was insufficient by itself to establish liability here.
• A limited-facts ruling is not a general exemption for shipping or container charges.

Common questions

Did Virginia decide that all commission income is exempt?

No. It found no taxable transaction on the facts then supplied.

What was unclear about the invoice?

Whether the per-diem "unit" charge related to tangible personal property.

What related ruling did Virginia identify?

Public Document 10-11 on steamship demurrage and detention charges.

Citations and references

• Virginia Public Document 10-11.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-65

Original ruling text

May 12, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to certain charges by * (the "Taxpayer"). I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is located in Virginia and is a subsidiary of a parent company located outside of the United States that provides steamship services. The Taxpayer operates as an agent for the parent and provides administrative and logistical services for the parent's steamship operations. The steamship operations are comprised of a container relay system that utilizes a series of terminals and vessels to transport containers of cargo from foreign ports to Virginia. Once at port in Virginia, the containers are removed from the ships and placed on trucks for transport to designated inland destinations. The Taxpayer is paid on a commission basis by its parent for the services it provides. The Taxpayer requests a ruling that the retail sales and use tax does not apply to its commission income.

RULING

The Taxpayer has been contacted by the Department for audit. Upon commencement of the audit, the audit staff discovered an invoice between the Taxpayer and a container transfer company that applies a per diem charge at a fixed daily rate in regard to a "unit." Based on this invoice, the audit staff concluded that the Taxpayer imposes a per diem charge in confection with containers supplied for shipping, and that such is a taxable transaction. The Taxpayer admits in its letter that it receives demurrage and per diem income, but asserts that such income is part of its commission income received for services performed and is not subject to the Virginia retail sales and use tax.

The invoice clearly indicates, that a per diem charge is being applied by the Taxpayer. However, it is unclear whether this is in regard to tangible personal property. In addition, no information has been provided that verifies that the Taxpayer is the owner of any tangible personal property and is engaged in transactions for the sale, lease or use of such property. No information has been provided that would suggest or confirm that the Taxpayer as the agent for its parent is responsible for the collection and remittance of the sales and use tax on tangible personal property owned, leased or used by the parent. Therefore, based on the information before me, there is no evidence of a taxable transaction for which the Taxpayer can be held liable for the assessment of the Virginia retail sales and use tax.

I have recently addressed the issue of demurrage and detention charges as they relate to steamship/shipping operations in Public Document 10-11 (02/04/10). The Taxpayer should review this document to determine if it has any application to the services it provides for its parent.

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

The public document cited is 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 ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1661664018.J