Could Virginia retailers refund sales tax when they later paid high-volume customers a monthly rebate?

Plain-English summary

Virginia said retailers could not refund sales tax merely because they later paid customers a high-volume rebate. The customers kept all of the property they purchased.

The retailers collected and remitted tax on each sale during the month. After reviewing a customer's total monthly purchases, a retailer might issue a separate check—for example, a $1,000 rebate after $10,000 of purchases.

Va. Code § 58.1-619 and 23 VAC 10-210-3080 allowed a dealer to deduct the portion of a sales price refunded when a customer returned tangible personal property. Here, no goods were returned. The Department characterized the payment as a goodwill rebate rather than a returned-goods adjustment.

Without returned property, there was no deduction from gross sales and no basis to refund sales tax on the rebate amount.

What this means for you

• A later customer reward is not automatically a reduction of the taxable sales price.
• Keep returned-goods credits distinct from volume rebates and loyalty payments.
• The ruling did not authorize a sales-tax-return adjustment for the described rebate checks.

Common questions

Q: What example did the ruling use?
A: A customer bought $10,000 of products and later received a 10%, or $1,000, rebate check.

Q: Why was no tax refunded?
A: The customer returned no tangible personal property.

Q: Could the retailer deduct the rebate from gross sales?
A: No, not under the returned-goods rule applied in the ruling.

Citations and references

• Va. Code § 58.1-619.
• 23 VAC 10-210-3080.

Subject

Sales tax not refundable on rebates

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-4

Original ruling text

January 10, 2013

Re: Request for Ruling: Retail Sales, and Use Tax

Dear *:

This is in reply to your letter in which you request a ruling on behalf of various retailers regarding the application of the retail sales and use tax to rebates issued to high volume customers.

FACTS

You state that the retailers sell products to customers throughout the month and collect and remit the retail sales and use tax for each transaction. Some of the retailers' customers purchase a high volume of products monthly. At the end of each month the retailers review their total sales for each customer to determine if a rebate is warranted. For example, if a customer purchases $10,000 in products, a retailer may decide to give a 10% rebate back to the customer. The retailer issues a check to the customer for $1,000. You question whether the sales taxes that were collected should be refunded with regard to the rebate. In addition, if the sales taxes are to be refunded, how are such sales tax refunds accounted for on the monthly sales tax return.

RULING

Title 23 of the Virginia Administrative Code (VAC) 10-210-3080 provides an interpretation of Va. Code § 58.1-619, which addresses returned goods. Title 23 VAC 10-210-3080 provides that a dealer may deduct from gross sales any portion of the sales price of tangible personal property returned by a customer and refunded to the customer. The remainder of this section provides guidance arid examples for such returns by customers.

With regard to your inquiry, the customers of the retailers at issue are not returning any tangible personal property previously purchased. In the example, the rebate of $1,000 is a gesture of goodwill between the retailers and their high volume customers. The sales tax should not be refunded on the amount of the rebate because there is no tangible personal property that has been returned upon which to base a deduction from gross sales and thus, a refund of the sales tax.

I trust that the foregoing response has addressed your concerns. 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.

The Code of Virginia section and regulation cited are available on-line in the Tax Policy Library section of the Department's website located at www.tax.virginia.gov. If you have any questions regarding this matter, please contact * of the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5168634185.Q