Tax Type
Retail Sales and Use Tax
Description
First use; Product demonstration equipment
Topic
Property Subject to Tax
Date Issued
08-31-2000
August 31, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer") for the period March 1996 through January 1999. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer was assessed use tax on purchases of equipment used for product demonstrations. For income tax purposes, the Taxpayer classified the demonstration equipment as fixed assets and depreciated the equipment. The Taxpayer maintains that the equipment purchases qualify for the resale exemption. The equipment is typically sold after it is written-off the Taxpayer's books, or the equipment is used for repair parts. The Taxpayer states that the equipment is available for sale during the time it is used for demonstration purposes. In the alternative, the Taxpayer suggests that a credit should be allowed against the audit liability for the sales tax that is collected when the demonstration equipment is sold.
DETERMINATION
Code of Virginia § 58.1-623 states that:
If a taxpayer ... makes any use of the [exempt] property other than an exempt use or retention, demonstration, or display while holding the property for resale, distribution, or lease in the regular course of business, such use shall be deemed a taxable sale by the taxpayer as of the time the property or service is first used by him, and the cost of the property to him shall be deemed the sales price of such retail sale.
Code of Virginia § 58.1-602 defines "use" as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." The department has previously ruled in Public Documents 97-32 (1/31/00) and 97-76 (2/18/97), copies enclosed, that the treatment of property as a depreciable asset constitutes a taxable use of the property although the property may subsequently be offered for retail sale. For this reason, the assessment of use tax is valid.
The Taxpayer also suggests that a credit for the sales tax collected on sales of the demonstration equipment should be allowed against the audit assessment. As Public Document 97-76 explains, the sale of the demonstration equipment is a separate and distinct transaction from the purchase of the equipment. Based on the department's longstanding policy, there is no basis to allow a credit in the audit for sales tax collected on sales of the demonstration equipment.
The Taxpayer seeks the waiver of the interest assessed in the audit. Interest was assessed in accordance with Title 23 of the Virginia Administrative Code 10-210-2032(B), which states that "[t]he application of interest to all audit deficiencies is mandatory . . . ." Accordingly, there is no basis to waive the interest.
The department's records indicate that the Taxpayer has paid the assessment in full. If you have any questions concerning this determination, please contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23858S
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer") for the period March 1996 through January 1999. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer was assessed use tax on purchases of equipment used for product demonstrations. For income tax purposes, the Taxpayer classified the demonstration equipment as fixed assets and depreciated the equipment. The Taxpayer maintains that the equipment purchases qualify for the resale exemption. The equipment is typically sold after it is written-off the Taxpayer's books, or the equipment is used for repair parts. The Taxpayer states that the equipment is available for sale during the time it is used for demonstration purposes. In the alternative, the Taxpayer suggests that a credit should be allowed against the audit liability for the sales tax that is collected when the demonstration equipment is sold.
DETERMINATION
Code of Virginia § 58.1-623 states that:
If a taxpayer ... makes any use of the [exempt] property other than an exempt use or retention, demonstration, or display while holding the property for resale, distribution, or lease in the regular course of business, such use shall be deemed a taxable sale by the taxpayer as of the time the property or service is first used by him, and the cost of the property to him shall be deemed the sales price of such retail sale.
Code of Virginia § 58.1-602 defines "use" as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." The department has previously ruled in Public Documents 97-32 (1/31/00) and 97-76 (2/18/97), copies enclosed, that the treatment of property as a depreciable asset constitutes a taxable use of the property although the property may subsequently be offered for retail sale. For this reason, the assessment of use tax is valid.
The Taxpayer also suggests that a credit for the sales tax collected on sales of the demonstration equipment should be allowed against the audit assessment. As Public Document 97-76 explains, the sale of the demonstration equipment is a separate and distinct transaction from the purchase of the equipment. Based on the department's longstanding policy, there is no basis to allow a credit in the audit for sales tax collected on sales of the demonstration equipment.
The Taxpayer seeks the waiver of the interest assessed in the audit. Interest was assessed in accordance with Title 23 of the Virginia Administrative Code 10-210-2032(B), which states that "[t]he application of interest to all audit deficiencies is mandatory . . . ." Accordingly, there is no basis to waive the interest.
The department's records indicate that the Taxpayer has paid the assessment in full. If you have any questions concerning this determination, please contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23858S
Rulings of the Tax Commissioner