Rulings of the Tax Commissioner
Retail Sales and Use Tax
Combination packages, shipping & handling charges and annual renewal fee
Medicine and Drugs; Property Subject to Tax; Taxable Transactions
December 8, 2006
Re: Retail Sales and Use Tax
This will reply to your letter in which you request a ruling on the application of the retail sales and use tax to sales of dietary supplements, vitamins and personal care products by an anonymous client (the "Taxpayer"). I apologize for the delay in the Department's response.
The Taxpayer is a seller of dietary supplements, vitamins and personal care products. The products will be distributed and sold by independent sales contractors throughout the United States. The Taxpayer requests a ruling regarding the application of the retail sales and use tax to a variety of products. In addition, the Taxpayer requests a ruling on the application of the retail sales and use tax to combination packages, shipping and handling charges and an annual renewal fee.
Dietary Supplements 1 through 9 and Vitamins
§ 58.1-609.10 14 provides an exemption from sales and use tax for nonprescription drugs and proprietary medicines. Virginia Tax Bulletin 98-4 (5/15/98) defines nonprescription drugs as any substances or mixture of substances containing medicines or drugs for which no prescription is required and which are generally sold for internal or topical use in the cure, mitigation, treatment or prevention of disease in human beings. In addition, Virginia Tax Bulletin 98-4 states that the exemption in
§ 58.1-609.10 14 does not apply to food products and supplements, or vitamins and mineral concentrates sold as dietary supplements.
These products are exempt only when sold pursuant to a written prescription by a licensed physician.
Vitamins, minerals and nutritional items are generally, under the Food and Drug Administration's guidelines, classified as food or dietary supplements. As noted above, the exemption outlined in
§ 58.1-609.10 14 does not apply to food products and supplements, or vitamins and mineral concentrates sold as dietary supplements. The products sold by the Taxpayer as dietary supplements and vitamins do not qualify for the retail sales and use tax exemption in
§ 58.1-609.10 14. Furthermore, as dietary supplements and vitamins the products do not qualify for the reduced state sales tax rate on food for human consumption. See
§ 58.1-611.1 and Tax Bulletin 99-11 (10/1/99). Accordingly, sales of these products by the Taxpayer are taxable at the full sales tax rate of 5.0% (4.0% state and 1.0% local).
Toothpaste and Cream
Virginia Tax Bulletin 98-4 states that the exemption in
§ 58.1-609.10 14 does not apply to cosmetics, including body lotions and cold creams, and toilet articles, including toothpastes. Accordingly, sales of these products by the Taxpayer are taxable at the full sales tax rate of 5.0% (4.0% state and 1.0% local).
In this instance, the Taxpayer's combination package contains taxable items (including supplements, vitamins, toothpaste and cream) as well as training booklets, CDs and brochures. As indicated above, these items are taxable and when sold in combination would remain taxable at the full retail sales and use tax rate of 5.0%.
Shipping and Handling Charges
Virginia's retail sales tax is computed on the "sales price" of an item.
§ 58.1-602 defines "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 . . . ."
§ 58.1-609.5 3 provides an exemption for separately stated transportation charges. Title 23 Virginia Administrative Code (VAC) 10-210-6000 interprets the exemption and states, "The tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to the tax." The regulation specifically excludes "handling charges" from the definition of "transportation charges" because handling does not constitute part of the actual transportation of the product to the customer.
When a taxable handling charge and an exempt transportation charge are combined into a single charge, the combined "shipping and handling" charge is taxable, even if such lump sum is separately stated.
This policy is longstanding and has been consistently applied as demonstrated by Public Documents (P.D.) 89-132 (4/27/89) and 91-223 (9/23/91). In addition, handling charges in connection with the sale of tangible personal property are subject to the tax.
Annual Renewal Fee
You represent that the Taxpayer charges an annual renewal fee to distributors for specific support services. Based on the information presented, the Taxpayer is providing a nontaxable service pursuant to
§ 58.1-609.5 1. Accordingly, the renewal fee charged by the Taxpayer to its distributors is not taxable.
However, as a service provider, the Taxpayer is liable for the tax on all purchases of tangible personal property furnished in connection with its services. See Title
of the Virginia Administrative Code 10-210-4040 E.
This response is based on the facts provided as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.
Code of Virginia
sections, regulations, Tax Bulletins and public documents cited, along with other reference documents, 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 response, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Janie E. Bowen