Were federal leaking-underground-storage and storage-related taxes excluded from the Virginia taxable price of fuel?

Subject

Federal storage-related charges were included in the taxable fuel price

Plain-English summary

Virginia included the disputed storage-related federal charges in the taxable sales price of fuel. The distributor sold gas, diesel, and heating fuels and argued that Virginia could not impose sales tax on charges mandated by the federal government.

The sales-price and gross-sales definitions generally included amounts connected with a retail sale unless a specific exclusion applied. The ruling listed certain excluded excise and sales taxes, but the leaking-underground-storage and other storage charges at issue were not among them.

Because the charges were directly connected with the fuel sales, like the storage-tank fee addressed in an earlier ruling, the assessment was upheld.

What this means for you

• A government-mandated charge is not automatically excluded from Virginia's taxable sales price.
• Identify the exact statutory exclusion rather than relying on the charge's federal character.
• Sale-related fees generally enter the tax base unless Virginia law removes them.
• Separately stated federal taxes receive different treatment only when the statute specifically says so.

Common questions

Were all federal fuel taxes included?

The ruling addressed only the storage-related charges at issue and noted other specifically listed exclusions.

Why were these charges taxable?

They were directly connected with the fuel sale and were not excluded by the cited definition.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-603.
• Virginia Public Document 08-111.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-161

Original ruling text

October 16, 2009

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you seek correction of the retail sales and use tax assessment issued for the period July 2005 through May 2008. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is in the business of supplying and distributing gas, diesel and heating fuels. The Taxpayer contests the assessment of tax in the audit on the federal leaking underground storage tax and a federal storage tax (the "storage taxes"). The Taxpayer asserts that the storage taxes are mandated by the Internal Revenue Service, and is unaware of any code that allows the Department to charge sales tax on federal tax.

DETERMINATION

Virginia Code § 58.1-603 imposes the retail sales and use tax upon "the gross sales price of each item or article of tangible personal property when sold at retail or distributed in this Commonwealth." Virginia Code § 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, 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 therefrom 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 statute specifically lists certain items that are not included in the sales price.

Virginia Code § 58.1-602 defines gross sales as "the sum total of all retail sales of tangible personal property or services as defined in this chapter, without any deduction, except as provided in this chapter. Gross sales shall not include the federal retailers' excise tax or the federal diesel fuel excise tax imposed in § 4091 of the Internal Revenue Code if the excise tax is billed to the purchaser separately from the selling price of the article, or the Virginia retail sales or use tax, or any sales or use tax imposed by any county or city under § 58.1-605 or § 58.1-606."

In Public Document (P.D.) 08-111 (6/26/08), the taxpayer sold petroleum products and sold and serviced fuel tanks and related equipment. During the audit period, the taxpayer sold off road fuels that are subject to the retail sales and use tax. The taxpayer added to the charge for the off road fuels a per gallon fee that represented the Virginia Petroleum Storage Tank Fee. The taxpayer was assessed tax in the audit for not including the storage tank fee in the sales price for the off road fuel. Because the storage tank fees were directly in connection with the sale of the off road fuels, the charge should have been included in the sales price for the purpose of computing the retail sales and use tax.

The Taxpayer's sales of gas, diesel and heating fuels are subject to the Virginia retail sales and use tax. The storage taxes in this instance are similar to storage tank fees in P.D. 08-111. The storage taxes are directly in connection with the sale of fuel by the Taxpayer, and should be included in the sales price for the purpose of computing the retail sales and use tax on the Taxpayer's sale of fuel to its customers. Additionally, the storage taxes at issue are not specifically listed in Va. Code § 58.1­602 as the type of taxes that are excluded from the sales price for the purpose of computing the Virginia retail sales and use tax. Accordingly, the assessment is correct as issued.

A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *. If you have any questions concerning payment of the assessment, you may contact at **.

The Code of Virginia sections 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 Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3145335535.P