How did a vending operator with machines at both nonprofit schools and for-profit businesses have to report Virginia sales tax?

Subject

Mixed-site vending used the general reporting method

Plain-English summary

Virginia required the operator to use the general vending-machine reporting rules because its machines were placed at both nonprofit and for-profit locations. The special rule for an operator whose machines were all placed under contract with nonprofits did not apply.

The default method was to apply the state and local sales-tax rate to the wholesale cost of goods sold through all machines. For this operator's locality at the time, the ruling used a 7% combined rate.

If calculating tax from wholesale cost was unrealistic or overly burdensome, the operator could use the alternative statutory method based on tax-included gross receipts.

What this means for you

• A single for-profit placement can prevent use of the nonprofit-only vending rule.
• The general method starts with wholesale cost rather than the machine's retail receipts.
• The gross-receipts alternative is available when the cost method is impractical.
• Apply the current state and local rate for the relevant reporting period; the 7% rate here was historical and location-specific.

Citations and references

• Va. Code § 58.1-614 A, C, and D; 23 VAC 10-210-6041.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-144

Original ruling text

August 26, 2014

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your correspondence in which you request a ruling on the application of the Virginia retail sale and use tax on sales made by * (the "Taxpayer") through vending machines placed in both nonprofit and for-profit businesses. I apologize for the delay in responding to your request.

FACTS

The Taxpayer is a vending machine operator located in * . The Taxpayer owns and places vending machines in nonprofit public and private schools, and various for-profit businesses throughout the locality. The Taxpayer is able to track sales made through its vending machines to every individual machine and its location. The Taxpayer is requesting the proper method for remitting the sales tax for sales made through its vending machines.

RULING

Virginia Code § 58.1-614 addresses sales made through vending machines and the sales tax reporting requirements. Virginia Code § 58.1-614 also separately addresses the sales tax reporting requirement for two different scenarios under subsections A and C. Subsection A of this statute addresses the general sales tax application of sales made through vending machines. Subsection C addresses sales made through vending machines when all vending machines placed by the vending machine operator are placed under contract with nonprofit organizations. Based on the information provided, the Taxpayer places vending machines with both nonprofit and for-profit operations; therefore, since the Taxpayer places some of its machines with for-profit businesses, Subsection C would not apply.

Based on the reading of Va. Code § 58.1-614, subsections A and D, the statute allows the reporting of sales made through vending machines in two different ways. Subsection A provides that a vending machine operator shall report the sales and use tax due by applying the total state and local sales tax rate to the wholesale cost of goods sold through vending machines. In the Taxpayer's case, since the Taxpayer is located in *, the Taxpayer would accrue and remit 7% (6% state rate and 1% local rate) on the cost price of all items sold through its vending machines.

Virginia Code § 58.1-614 D provides an alternative method for reporting vending machine sales when the Tax Commissioner finds it is impractical to report the tax based on the cost of goods sold method as provided in Subsection A. Subsection D allows the vending machine operator to remit the sales tax based on a percentage of gross receipts which takes into account the inclusion of the sales tax.

Based on the above, unless it is unrealistic or overly burdensome to calculate the sales tax due on cost of goods sold, the Taxpayer should accrue and remit the sales tax based on 7% of the cost of goods sold. If this method is not feasible, the Taxpayer may accrue and remit the sales tax on the gross receipts method in accordance with Va. Code § 58.1-614.D. See also Title 23 of the Virginia Administration Code 10-210-6041.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5495305825.T