Following a taxpayer’s assessment appeal, the Virginia Tax Commissioner determined that “easy return label” and “merchandise logo charges” were subject to Virginia sales tax.
Easy return labels
The taxpayer was a retailer of products sold online and through catalogs. The taxpayer offered its customers the option of returning merchandise using an “easy return label,” which was shipped with the merchandise. If the customer opted to return the merchandise, the customer would affix the label to the package containing the merchandise to be returned. The taxpayer charged the customer a flat fee for the use of the easy return label, representing the postage cost to ship the returned merchandise.
The Virginia sales tax statute exempts separately stated transportation charges from sales tax. But the Commissioner has adopted a regulation limiting that exemption to only delivery charges for transportation from the seller to the purchaser. In an earlier ruling involving the same taxpayer, P.D. 19-115, the Commissioner determined that the exemption did not apply to the easy return charges because the charge was for transportation from the purchaser to the seller, rather than from seller to the purchaser. On reconsideration, the taxpayer argued that easy return label charges billed to Virginia customers were exempt as the delivery of tangible personal property for use or consumption outside the state. However, the Commissioner concluded that the returned inventory was not subject to a taxable use outside of Virginia; rather, the products were only being returned to inventory. The charges were instead taxable because of their direct connection to the sales to Virginia customers of the returned merchandise.
Merchandise logo charges
The taxpayer offered customers the option of adding customized logos to clothing sold by the taxpayer. The taxpayer argued that the merchandise logo charges were exempt as separately stated charges for clothing alterations. The Commissioner rejected the taxpayer’s argument, adopting a narrow dictionary definition of “alter” as “to adjust (a garment) for a better fit.” As the merchandise logo charges were not adjustments to clothing to ensure a better fit, the Commissioner concluded that the charges did not qualify for the exemption.
Va. Public Document Ruling No. 21-74, Va. Dep’t of Taxation (May 25, 2021).