February 21, 2024
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will respond to your letter in which you seek correction of the retail sales and use tax assessment issued to *****, Inc. (the “Taxpayer”) for the periods May 2015 through April 2018. I apologize for the delay in responding to your request.
FACTS
The Taxpayer, a business entity located and operated in Virginia, provided portable toilet rentals and related services. Under audit, the Department found numerous errors, including that the Taxpayer did not charge, collect, or remit tax on service charges related to the rental of tangible personal property. The Department issued an assessment for the unpaid tax and interest. The Taxpayer appeals, alleging that services are not subject to tax when itemized separately from any tangible personal property, and that it was following advice previously provided by the Department.
DETERMINATION
Services
Virginia Code § 58.1-603 imposes the sales tax, in part, on “the gross proceeds derived from the lease or rental of tangible personal property…” Virginia Code § 58.1-602 defines "[g]ross proceeds" as “the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services, computed with the same deductions, where applicable, as for sales price as defined in this section…”
Virginia Code § 58.1-602 provides the definition of “sales price” as it relates to the retail sales and use tax and provides, in part, the following:
"Sales price" means the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
As provided above, the term sales price means the total amount, including any services that are part of the sale, for which tangible personal property is sold. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 sets out the Department's policy with respect to the retail sales tax application to services and Subsection A provides the following:
Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.
Transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated. As explained in subsection D of this section, the “true object” test is used to determine the taxability of these transactions.
It has been the longstanding policy of the Department to treat the lease or rental of portable toilets as a taxable transaction. See Public Document (P.D.) 91-275 (10/28/1991), P.D. 11-118 (6/23/2011), and P.D. 13-40 (3/20/2013). The Department’s position has also been upheld by the Virginia Supreme Court in LZM Inc. v. Department, 296 Va. 105, 606 S.E.2d 797 (2005). The "true object" of a portable toilet operation has consistently been found to be the provision of tangible personal property. The waste removal and other services provided in a portable toilet operation are incidental to the provision of the toilets. As stated above, services provided in connection with the sale or lease of tangible personal property are taxable. Accordingly, the auditor correctly included untaxed service charges for set up, pick up, off road, and extra service in the audit computation.
Previous Advice
The Taxpayer contends that the Department cannot impose tax on service charges during the audit period because it was operating in accordance with advice it received from a Department employee during a previous audit over 40 years ago. Virginia Code § 58.1-1835 provides that the Department must abate any portion of tax, interest, and penalty attributable to erroneous written advice by the Department under the following conditions:
1. The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;
2. The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and
3. The facts of the case described in the written advice and the request thereof are the same, and the taxpayer’s business or personal operations have not changed since the advice was rendered.
Generally, audit assessments will not be abated based on the Taxpayer’s claim that it received incorrect information from a representative of the Department. Without full knowledge of the facts presented by a taxpayer during a previous audit cycle and the specific advice provided by an auditor, the Department would be unable determine whether such taxpayer reasonably relied on the advice which resulted in the assessment.
In P.D. 19-80 (8/2/2019), however, the Department did address a situation in which it found that erroneous written advice was provided as a result of a previous audit. Specifically, the Department found evidence of substantive dialogue and correspondence between the taxpayer and the Department’s auditor, which could be presumed to be treated as a specific written request required by the statute. The determination also noted that the taxpayer’s responsiveness with adequate and accurate information throughout the audit and appeals processes aided the Department in reaching this conclusion.
Under the circumstances present in P.D. 19-80, the Department determined that the conditions of Virginia Code § 58.1-1835 were met and the assessment at issue was abated. However, once corrective direction is provided by the Department, either by audit, ruling, determination, or other written advice, a taxpayer is no longer eligible for the defense under Virginia Code § 58.1-1835.
In this case, the available records indicate that the Taxpayer, as a corporate entity, was formed in 1998 and has been audited by the Department on two occasions. The first audit occurred in 2015 for the period January 2013 through December 2013, and the second audit, which is at issue, occurred in 2018 for the period May 2015 through April 2018. The available evidence does not indicate that the Taxpayer specifically requested advice, that the Department provided any written or verbal advice to the Taxpayer, or that the Taxpayer’s reliance on such advice resulted in the assessment under appeal.
CONCLUSION
Based on a review of the information available, the assessment is upheld and remains due and payable. In addition, the Taxpayer has not met the conditions found in Virginia Code § 58.1-1835. The Department will issue an updated bill, with accrued interest to date, shortly. The Taxpayer should remit payment of the amount due within 60 days of the date on the updated bill to avoid the accrual of additional interest and possible collection action.
The Code of Virginia sections, regulations, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at (804) *****, or via email at *****@tax.virginia.gov.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2234-C