Department of Taxation

The Nevada Tax Commission and the Legislative Commission have approved LCB File No. R021-08. This new regulation became effective on April 17, 2008. The intent of this regulation is to modify Chapter 372 of the Nevada Administrative Code for purposes of regulatory compliance with the Streamlined Sales and Use Tax Agreement (SST). Several important issues addressed in the new regulation are explained below.

Bundled Transactions

Generally speaking, a bundled transaction means the retail sale of two or more products where the products are distinct and identifiable from each other and sold together for a single non-itemized and non-negotiable price. If a transaction falls within the definition of a bundled transaction, the transaction, in most circumstances, is taxable.

If the primary reason for the transaction is the sale of a service, the transaction is not a bundled transaction even if there is tangible personal property involved. An example of this would be judo lessons that include the outfit sold for a single price.

If a transaction that would otherwise meet the criteria to be a bundled transaction involves the sale of food, prescription drugs, durable medical equipment, prosthetic devices or medical supplies and the cost to the seller of these products constitutes 50% or more of the total cost of the items sold, the transaction is also not a bundled transaction. The taxable amount for the sale of multiple products for a single price that do not meet the criteria to be a bundled transaction is the seller’s cost of any taxable items sold.

An example of this would be a gift basket with food where the cost of the food constitutes more than 50% of the total cost to the seller of the food and the basket. In this example, the taxable amount would be the cost of the basket to the seller. Conversely, if the cost of the food constituted less than 50% of the total cost of the items sold, the transaction would be a bundled transaction. Therefore, the entire sales price of the gift basket would be taxable.

Prosthetic Devices

Prosthetic devices now include, among other things, breasts implants, dialysis and feeding catheters, insulin pumps, cochlear implants, and amalgams, ceramics, porcelain and other metal alloys to fill teeth. Prosthetic devices are exempt if they are prescribed or applied by a licensed physician or if they are partially or fully covered by Medicare or Medicaid.

Food

“Prepared Foods” has now been defined and has the same meaning as ascribed in NRS 360B.460.

Further, the definition for “prepared food intended for immediate consumption” under NAC 372.605 was amended and now means prepared food customarily sold with eating utensils provided by the seller, including plates, knives, forks, spoons, glasses, cups, napkins or straws. An example of this would be a convenience store selling a fountain drink regardless of who provided the cup.

Additional information regarding “prepared food” will be forthcoming in future Tax Notes issues.

Delivery

Amendments were made to existing NAC 372.101 for delivery charges. References to shipping and freight were deleted as well as the previous “title passage” rule. As ascribed to in NRS 360B.425, “delivery charges” now mean charges by a seller of personal property for the preparation of delivery of the property to a location designated by the purchaser of the property, including, but not limited to charges for transportation, shipping, postage, handling, crating and packing.

Delivery charges included in the sale of tangible personal property are subject to sales and use taxes. However, if the charge does not pertain to any preparation, handling, crating or packing services prepared by the seller before shipment and is separately stated on the invoice, the charge is not taxable.

An example of a taxable transaction would be a retailer shipping tangible personal property to a purchaser using a common carrier to ship the item. The retailer separately stated the cost of the delivery on the invoice to the consumer; however, the seller had to prepare and package the property prior to shipment by the common carrier and inflated its “shipping costs” to include preparation/packaging charges.

Future Tax Notes issues will include additional details regarding SST statutes and regulations.