Virginia – Taxability of Rebates to High Volume Customers

1/21/2013

SALT Report 2061 – The Virginia Tax Commissioner issued a ruling regarding the application of sales and use tax on rebates issued to high volume purchasers. The Taxpayer in this case sells products to its customers throughout the month and collects and remits retail sales and use tax for each transaction.

Several of the Taxpayer’s customers purchase a high volume of products.  As an incentive to these customers the Taxpayer review the total sales for each customer on a monthly basis to determine if a rebate is warranted. For example, if a customer purchases $10,000 in products, the Taxpayer may give a 10% rebate back to that customer in the form of a check. The Taxpayer requested guidance as to whether the sales tax that was originally collected should be refunded with the rebate.

Title 23 VAC 10-210-3080 addresses returned goods and provides that a dealer may deduct from its gross sales any portion of the sales price of tangible personal property that is returned by a customer for a refund.  However, the Commissioner states that the Taxpayer’s customers are not returning any previously purchased tangible personal property. The rebate is simply a gesture of goodwill between the Taxpayer and its high volume customers. Therefore, sales tax should not be refunded on the amount of the rebate because there is no return of tangible personal property that would require a deduction from the gross sales and a refund of the sales tax.

For Further Information:

Virginia Department of Taxation – Ruling of the Commissioner 4-13