TECHNICAL ASSISTANCE ADVISORY 87-006Re: Application of Bank for Permission to Include Amount of Consumers Sales Tax Due on a Taxable Transaction in the Amount Charged Rather than as an Addition to the Amount Charged. Permission was requested by a bank to increase the amount of charged or fees for taxable services charged customers by including the amount of applicable consumers sales taxes due on the transaction in lieu of separately sating the amount of tax due. This permission is being sought under W. Va. Code §§ 11­10­5r and 11­15-12. According to your letter, the banking industry is concerned about the time it will take, as well as the cost, to convert existing computer programs for their automated billing systems to accommodate the statutory requirements that consumers sales tax be separately stated in the invoice or billing for taxable sales of tangible personal property or services. You proffer that to comply with the law, virtually every bank will have to undergo massive computer reprogramming and incur substantial conversion costs so that the consumers sales tax for a taxable transaction can be separately stated on such items as bank statements, debit memos, and customer advice. Additionally, in the majority of cases, existing preprinted documents will have to be redesigned and reprinted in order to allow space for the sales tax notation to appear on the appropriate documents. To illustrate, the typical bank statement contains a very small block at the top of the statement to indicate the monthly service charge. This block will now have to be redesigned and expanded to provide room for separately stating the applicable consumers sales tax. As an initial matter, we note that during the 1987 Regular Session of the legislature four changes were made in the consumers sales and use tax laws affecting the responsibility of banks for collection of consumers sales taxes from their customers or for payment of consumers sales and use taxes on purchases for use or consumption in their business. These changes are: 1. The specific statutory exemption from consumers sales tax for safety deposit box rentals, which was enacted effective July 1, 1974, was repealed as of July 1, 1987, for safety deposit rental agreements executed or renewed after June 30, 1987. 2. The broad exemptions from payment of consumers sales taxes which many businesses have had since 1937 were substantially narrowed for many of those businesses as of July

1, 1987. 3. Electronic data processing services, which heretofore were subject to consumers sales tax but exempt from use tax, became exempt from consumers sales tax as of July 1, 1987. 4. Many of the exemptions from consumers sales tax which purchasers could heretofore claim by presenting to the vendor an exemption certificate may no longer be claimed in that manner after June 30, 1987. Exemption provided for in W. Va. Code § 11-15-9(e), (f), (g), (k), (l), (q), (v) and (z), may now be claimed only by first paying the consumers sales tax due to the vendor and then filing a claim for refund or credit with the Tax Commissioner unless the purchaser gives his West Virginia direct pay permit number to the vendor of the tangible personal property or taxable service. Simultaneously with the effective date of these statutory changes, banks were put on notice that they must collect consumers sales tax on their sales of tangible personal property and taxable services unless the purchaser of the tangible personal property or taxable service presents a properly executed exemption certificate or the purchaser's West Virginia direct pay permit number. The practical result is that unless the transaction is the sale or loan of intangible personal property or the sale or rental of real estate or the furnishing of a professional or personal service the bank must collect consumers sales tax or a properly executed exemption certificate or the purchaser's West Virginia direct pay permit number. While banking services are not specifically exempted from tax as are professional, personal and public utility services, the administrative practice of prior Tax Commissioners and that of the banks themselves was to treat the banks as largely providing nontaxable services and making nontaxable sales (leases or loans) of property. The request here is for the Tax Commissioner to permit the banks to include consumers sales tax in the amount charged for a service rather than separately stating the tax as an addition to the charge, and the assertion is made that the Tax Commissioner is empowered by W. Va. Code § 11-15-12 to permit collection of tax in this manner. W. Va. Code § 11-15-12 was enacted in 1937 and has never been amended. It reads as follows: § 11-15-12. Agreements by competing taxpayers. To provide uniform methods of adding the average equivalent of the tax to the selling price in each sale or transaction subject to the tax, appropriate rules and regulations, except as otherwise herein provided, may be agreed upon or adopted by competing taxpayers or associations of taxpayers, except that all collections shall be made on the basis of the total transaction at the time of sale, without regard to the value of the separate items making up the total amount of the sale. Such rules and regulations, if they do not involve price fixing, shall not be deemed illegal as in restraint of trade or commerce. The tax commissioner shall cooperate in formulating such rules and regulations, and, in the event appropriate rules and regulations are not submitted to him within thirty days after this article takes effect, or within a reasonable extended period fixed by the tax commissioner, he shall himself formulate and promulgate appropriate rules and regulations to effectuate the purpose of this section. (Emphasis added.) The above quoted language is clearly not clear and unambiguous; and its objective or purpose is equally unclear. The only evidence we have that this section has been utilized by a Tax Commissioner is from the period July 1, 1979, to July 1, 1981, when the consumers sales tax on "food" intended for human consumption sold i grocery-type stores was being phased out, and several alternative methods for calculating the amount of tax due were authorized by the Tax Commissioner. These alternative methods applied when a customer's purchase consisted of both "food" and nonfood items and the vendor's cash register was incapable of calculating tax due when different tax rates applied to components of the transaction. Somewhat similar language is found in Iowa Code § 422.48(2). Iowa, like West Virginia, imposes its consumers sales tax on both sales of tangible personal property and sales of taxable services. Iowa Code: §§ 422.48 and 422.49 reads as follows: Sec. 422.48. Adding of tax. (1) Retailers shall, as far as practicable, add the tax imposed under this division, or the average equivalent thereof, to the sales price or charge, less trade-ins allowed and taken and when added such tax shall constitute a part of such price or charge, shall be a debt from consumer or user to retailer until paid, or until the director assumes responsibility for collection of a tax on services, as provided in section 422.43, and shall be recoverable at law in the same manner as other debts. (2) Agreements between competing retailers, or the adoption of appropriate rules and regulations by organizations or associations of retailers to provide uniform methods for adding such tax or the average equivalent thereof, and which do not involve price-fixing agreements otherwise unlawful, are expressly authorized and shall be held not in violation of chapter 553, or other antitrust laws of this state. The director shall cooperate with such retailers, organizations, or associations in formulating such agreements, rules and regulations. The director may adopt and promulgate rules and regulations for adding such tax, or the average equivalents thereof, by providing different methods applying uniformly to retailers within the same general classification for the purpose of enabling such retailer to add and collect, as far as practicable, the amount of such tax. Sec. 422.49. Absorbing tax prohibited. -- it shall be unlawful for any retailer to advertise or hold out or state to the public or to any consumer, directly or indirectly, that the tax or any part thereof imposed by this division will be assumed or absorbed by the retailer or that it will not be considered as an element in the price to the consumer, or if added, that it or any part thereof will be refunded. It appears that W. Va. Code § 11-15-12 applies in at least two types of situations. The first is where it is impractical, unfeasible or impossible for a vendor to separately state the tax and "industry-wide relief" is sought. The second is where a transaction is a mixed transaction, one embodying components of both taxable and nontaxable transactions for a lump-sum price. The methods of applying the tax for which approval is sought here falls within the scope of W. Va. Code § 11-15-12 and under the facts and circumstances is reasonable provided the other statutory requirements specifying vendor duties or responsibilities are satisfied. These statutory provisions are as follows. W. Va. Code § 11-15-3 prohibits the aggregation of separate taxable transactions for purposes of computing the amount of tax due, even if several transactions are aggregated i the billing. This prohibition is reflective of the fact that the sales tax is imposed in brackets of twenty cents rather than as a flat percentage. To illustrate, the tax due on ten separate transactions at $1.10 each is 60 cents -- not 55 cents. Therefore, tax must be computed at the time the charge is posted, or accrued by the bank, which may or may not be the date of the bank statement or other billing of the customer. W. Va. Code § 11-15-4 specifies that "purchaser shall pay to the vendor the amount of tax levied by this article which shall be added to and constitute a part of the sales price;" and that the "vendor shall not represent to the public, in any manner, directly or indirectly, that he will absorb all or any part of the tax, or that the tax is not to be considered an element of the price to the purchaser. W. Va. Code § 11-15-10 similarly specifies that "[t]he amount of the tax shall be added to the sales price, and shall constitute a part of that price and be collectible as such [from the ultimate consumer]." The concern of the banks is understandable particularly in light of the penalties which apply for vendor noncompliance with the law. Any person required to collect consumers sales tax who fails to collect the proper amount of tax is personally liable for the amount of tax which he failed to collect, W. Va. Code § 11­15­4a, plus statutory interest, W. Va. Code § 11-10-17 and applicable civil penalties, W. Va. Code § 11-10-18. Additionally, if the vendor willfully fails to collect tax in the manner required by law, he is guilty of a misdemeanor, W. Va. Code § 11-9-6, and if he "represents, advertises or states to the public or to any purchasers ... that he will absorb or assume payment of any part of such tax or that such tax is not to be considered as part of or added to the sales price ... [he] is guilty of a misdemeanor," W.

Va. Code § 11­9-7. In summary, the bank is hereby authorized and may elect to include the amount of consumers sales tax due with respect to a taxable transaction within the amount of the fee or charge for the transaction rather than separately stating the amount of the tax provided: 1. Customers are clearly advised that the fee or charge for a taxable transaction includes the applicable amount of consumers sales tax, due, if any be due from the customer. 2. Customers are advised when consumers sales tax has been excluded from the fee or charge for a taxable transaction due to the customer having furnished the vendor with a properly executed exemption certificate or the customer's West Virginia direct pay permit number. 3. Customers are provided with sufficient information from which they can determine the amount of consumers sales tax include in the fee or charge for a taxable transaction; or if such tax was not included and the transaction is a mixed transaction composed of taxable and nontaxable elements for which a lump-sum charge is made, a direct pay permit customer can determine the amount of consumers sales tax to remit directly to the Tax Commissioner if any is due. 4. Adequate books and records are maintained by the vendor to verify compliance with the foregoing and that the proper amount of consumers sales tax was collected from customers and remitted to the Tax Commissioner. Michael E. Caryl State Tax Commissioner Issued: August 27, 1987MEC:dss