Sales, Use and International Tax Activity Update - June 2009

Marketing Transcends to Tangible in Virginia?

The Tax Commissioner ruled that a market development fee charged on the same invoice as construction materials are part of the gross sales price and therefore subject to tax. The marketing development fee was separately stated on the invoice.

Facts
The Taxpayer is a contractor that obtains work by bidding on public projects. Materials from specific vendors requested by the project architect or engineer are purchased for each project. One such material vendor has hired an independent representative to promote its product to architects and engineers. The vendor charges the Taxpayer a market development fee as a separate line item on each invoice for materials purchased. Currently, the vendor is collecting Retail Sales and Use Tax on this fee from the Taxpayer. The Taxpayer now requests a ruling regarding the application of the Retail Sales and Use Tax on the market development fee.

Ruling
The Va. Code § 58.1-60(a)  imposes a retail sales tax on the gross sales price of each item or article of tangible personal property when sold at retail or distributed in this Commonwealth. Sales price is defined in Va. Code § 58.1-602 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”.

The service exemption provided for in Va. Code § 58.1-609.5(1), would only apply to the services provided to the vendor by the independent representative. Any pass-through charges for the service to the Taxpayer, even if separately stated, would be considered part of the sales price for which the tangible personal property was sold, and would be subject to the Retail Sales and Use Tax. As stated in the Services Regulation, 23 Virginia Administrative Code 10-210-4040, any service included in or in connection with the sale of tangible personal property is considered taxable. Accordingly, the vendor is required to collect and remit the tax on market development fees.

This ruling may be viewed at The Virginia Tax Policy Library

(Ruling of Commissioner, P.D. 09-55, Virginia Department of Taxation, May 1, 2009)

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