Virginia – Taxability of Purchasing Fees

1/21/2013

SALT Report 2060 – The Virginia Tax Commissioner issued a ruling regarding a Taxpayer’s assessment of use tax on certain purchasing fees, set up fees, and shipping and handling fees that were paid to a vendor.  While in the process of renovating its facilities, the Taxpayer hired a vendor to locate certain products at the best possible price. The Taxpayer agreed to pay a purchasing fee in the amount of 10% of the product’s price to the vendor. The product prices, shipping fees, and purchasing fees were all separately stated on the vendor’s invoice.

During a subsequent audit the Department determined that many of these fees were subject to use tax. The Taxpayer appealed the decision claiming that the fees should be exempt because they are labor fees and are separately stated on the vendor invoices.

Upon review of the audit, the Tax Commissioner referred to Virginia Code § 58.1-602 which defines the term “sales price” as, “The total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction there from on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.”

Therefore, the Commissioner noted that because the purchasing fees were charged in connection with the retail sale of tangible personal property they are considered part of the sales price. Accordingly, the purchasing fees are taxable.

In regards to the assessment of use tax on the shipping charges, the Commissioner allowed the exemption from sales and use tax because these fees were separately stated as transportation charges. However, if the Vendor had combined the exempt shipping charge with a taxable handling charge, the result would be a lump sum taxable charge because the exempt shipping fee was not separately stated.

For Further Information:

Virginia Department of Taxation – Ruling of the Commissioner PD 3-13