11-10-5r regarding the West Virginia Consumers Sales and Service Tax ("sales tax") liability of a food broker on commissions earned for promoting the products of various food manufacturers to food distributors. The taxpayer is a food broker who enters into contracts with various food manufacturers to promote those companies' products to various food distributors. When a sale is completed, the taxpayer receives a commission based on the product which has been purchased by the distributors. The taxpayer does not deliver the product or collect monies from the various food distributors to which it sells. The taxpayer acts in the capacity of an independent contractor when they receive orders for the manufacturers' products from the food distributors. West Virginia Code §

11-15-8 specifically states that all services except professional services, personal services and services rendered by corporations subject to the control of the Public Service Commission are subject to the provisions of the West Virginia Consumers Sales and Service Tax. "Service" is defined in W.

Va. Code §

11-15-2(i) as follows: "Service" or "selected service" includes all nonprofessional activities engaged in for other persons for a consideration, which involve the rendering of a service as distinguished from the sale of tangible personal property, but shall not include contracting, personal services or the services rendered by an employee to his employer or any service rendered for resale. Therefore, all services as above defined furnished by a taxpayer which do not fall within the exceptions in W. Va. Code §

11-15-8 are subject to sales tax unless such transactions are elsewhere specifically exempted from the sales tax. Consequently the rendering of broker services on a commission basis (or otherwise) is the provision of a taxable service. The West Virginia Consumers Sales and Service Tax and Use Tax Regulations, 110 C.S.R. 15, §

88.1 provides as follows: Fees or commissions earned from transacting business as a commodity broker are services which are subject to the sales and service tax and use tax. The fact that these fees may be computed as a percentage of sales has no bearing on their taxability. These fees or commissions are not considered to be "directly used or consumed" (as defined in Section 2 of these regulations) in the businesses of transportation, production of natural resources, transmission, communication, and manufacturing. Under the circumstances presented for ruling, the food broker is providing a taxable service for the various food manufacturers, who pay the food broker a commission on each sale by that food broker to a food distributor. The collection of sales tax on such commissions was not required prior to July

1, 1987 as a food manufacturer was exempt from sales tax on any purchases used in the manufacturing business. See W.

Va. Code §

11-15-9(g) (1984). Effective July

1, 1987, the exemption allowed to manufacturers was narrowed to include only those purchases directly used or consumed in the manufacturing activity. W.

Va. Code §

11-15-9(g). West Virginia Code §

11-15-2(n)(3)(E) specifically provides that the activities of marketing, general management, supervision, finance, training, accounting and administration do not constitute activities directly used or consumed in the manufacturing activity. Since the payment of commissions to independent contractors for the promotion of food products to food distributors falls within the functions of marketing, general management and finance, the activity being purchased is not directly used in the manufacturing activity; as a result, the food company may not assert exemption from sales tax for such charges as being directly used in its business. The fact that a broker receives payment for the services he renders on a commission basis does not relieve the sales tax liability arising from a transaction. Taxpayers providing sales of taxable services must remit the proper amount of sales tax, such tax being based upon the amount of their commission which is the compensation they receive for the services they render. The Department of Tax and Revenue maintains that the sales tax is due upon such commissions and it is incumbent upon the broker to collect from the seller the sales tax due on the commissions earned. If sales tax is not collected at the time the commission is earned, the broker will become liable for the uncollected and unremitted tax pursuant to W.

Va. Code §

11-15-4a. This Technical Assistance Advisory is based upon the laws, regulations and court decisions currently in effect and any change in such authority may render this ruling as null and void at the time such change becomes effective. __________________________________ Charles O. Lorensen State Tax Commissioner Date: October 4, 1989