How did Virginia marina dealers collect and report sales tax on dyed diesel sold for pleasure watercraft?

Plain-English summary

Marina dealers could either include the historical 5% sales tax in the pump price or state it separately. Dyed diesel and other fuel not used in highway vehicles were exempt from Virginia fuels tax, but that made them subject to retail sales and use tax unless a separate sales-tax exemption applied.

For tax-included pricing, the dealer used the bracket system and posted notice at the pump that tax was included. The dealer still owed an amount equal to 5% of gross taxable sales. To report tax-included receipts, the ruling divided gross receipts by 1.05 to derive taxable sales.

Alternatively, the dealer calculated 5% of the selling price and separately stated it, rounding one-half cent or more up to one cent. Gross sales were reported separately from tax collected, and computed tax had to equal 5% of taxable sales.

Dealers were liable for tax on untaxed fuel sold for pleasure watercraft when no valid exemption applied. The Department also stated that it conducted compliance audits of similar businesses.

Common questions

Q: Did sales tax have to appear as a separate line?
A: No. It could be included in the pump price with notice or separately stated.

Q: Did dyed diesel's fuels-tax exemption make it sales-tax exempt?
A: No. It was taxable unless a separate retail-sales-tax exemption applied.

Q: Are the 5% calculations current?
A: No. They were the rates and reporting examples in the 2012 ruling.

Citations and references

• Va. Code §§ 58.1-609.1(1) and 58.1-2226(4).
• 23 VAC 10-210-220.
• Virginia Tax Bulletin 10-9 (August 24, 2010).

Subject

Dealer's collection of sales tax on dyed diesel fuel for pleasure watercraft.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-188

Original ruling text

November 15, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your request for clarification regarding a dealer's responsibility for the collection of the retail sales tax on dyed diesel fuel for use in pleasure watercraft. I apologize for the delay in responding to your letter.

FACTS

* (the "Taxpayer") is a nonprofit trade association organized to promote and protect Virginia's recreational marine industry. The Taxpayer indicates that since the Department issued Virginia Tax Bulletin 10-9 (8/24/10), members have reported confusion among marina fuel dealers as to whether the retail sales tax should be charged as a separate line item rather than included in the pump price. Further, the Taxpayer is concerned that a number of dyed diesel retailers remain unaware of the requirement to separately charge sales tax on dyed diesel fuel to customers that do not provide an exemption certificate indicating the purchase is exempt under the law. In addition, the Taxpayer believes that there has not been equal enforcement of the tax laws among marina fuel dealers regarding the collection of the sales tax on dyed diesel fuels.

RULING

The Department issued Virginia Tax Bulletin 10-9, which provides guidance to taxpayers on the proper collection of the retail sales and use tax on fuels that are not subject to the Virginia Fuels Tax. Pursuant to Va. Code § 58.1-2226 4, dyed diesel fuel and other fuel that is not used in a highway vehicle is exempt from the Virginia Fuels Tax. Virginia Code § 58.1-609.1 1 provides that fuels exempt from the Virginia fuels tax are subject to the retail sales and use tax, unless such taxes would be specifically exempted. Any person selling fuel at retail that is not subject to the Virginia Fuels Tax is considered a dealer for the purposes of the Retail Sales and Use Tax. The retail sales and use tax must be paid on these fuels, unless an exemption from the retail sales and use tax applies to the sale.

Collection of the Tax

Virginia Tax Bulletin 10-9 addresses the methods for collecting the sales tax on taxable fuels and provides that the retail sales and use tax on fuels for use in pleasure watercraft may either be:

Included in the unit measure of fuel using the bracket system set forth in Title 23 of the Virginia Administration Code 10-210-220 to determine the proper amount of tax to be added to the sales price of each unit. However, I would note that the bracket system does not relieve the dealer from the liability of paying an amount equal to 5% of his gross taxable sales. The dealer should display a notice at the dispensing pump that the sales tax is included in the unit price of the fuel, or

The tax may be computed at a straight 5% of the sales price and separately stated from the selling price. If the tax is computed at a straight 5% of the sales price, one-half cent or more is treated as one cent.

Reporting the Sales Tax

Sales tax included in the unit measure of fuel: Based on the current sales and use tax rate of 5%, the dealer should divide the total gross receipts for the period, inclusive of the sales tax collected, by a factor of 1.05 to derive the amount of sales tax that must be remitted to the Department.

Example: Dealer has $15,750 in monthly gross receipts (inclusive of the sales tax) for dyed diesel fuel and other fuel subject to the retail sales and use tax. The dealer would report $15,000 in gross sales on line 1 of the return, ($15,750 divided by the factor 1.05). The dealer should follow the instructions on the Virginia Retail Sales and Use Tax Worksheet and Instructions to compute the 5% sales tax that must be remitted to the Department. ($15,000 X 5%= $750 sales tax).

Sales tax computed at a straight 5% of the sales price: Because the dealer separately states the sales tax from the selling price using this method, the dealer should have a separate record of its total gross sales and for the total sales tax collected on dyed diesel fuel and other fuel subject to the retail sales and use tax. The dealer would report the gross sales for the period on line 1 of the return and follow the instructions on the Virginia Retail Sales and Use Tax Worksheet and Instructions to compute the 5% sales tax that must be remitted to the Department. The total amount of the sales tax collected should equal to 5% of the total gross taxable sales.

Example: Dealer has $15,000 in monthly gross sales of dyed diesel fuel and other fuel subject to the retail sales and use tax. Dealer collects a total of $750 retail sales and use tax on such sales computed at a straight 5% on the sales price of the fuel sold to each customer. The dealer would report gross sales of $15,000 on line 1 of the return. The computed tax based upon the gross sales reported on the return should equal the amount of sales tax collected. ($15,000 X 5%= $750).

Enforcement of the Tax Laws

Dealers selling fuels that do not abide by the law will be held liable for any untaxed dyed diesel fuel and other fuel sold to customers for use in pleasure watercraft. I want to ensure the Taxpayer that compliance audits are being conducted on other similar businesses to ensure compliance with the tax laws.

The Code of Virginia sections, regulation and tax bulletin cited are available on­line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this ruling, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Any questions regarding the law on advertising or posting the retail sales price of petroleum products (to include, gasoline, diesel and off-road diesel) at dispensing fuel pumps should be directed to: Program Manager, Office of Weights and Measures, Virginia Department of Agriculture and Consumer Services at *.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5007125529.T