Tax Type
Retail Sales and Use Tax
Description
Miscellaneous service enterprises; Electronic cards;
Topic
Collection of Delinquent Tax
Penalties and Interest
Taxability of Persons and Transactions
Date Issued
06-27-2000
June 27, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting correction of the sales and use tax audit assessment issued to ****** (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer provides multiple listing services to realtors. An audit for the period November 1995 through September 1998 resulted in the assessment of sales and use tax on untaxed sales and purchases.
The Taxpayer takes exception to the tax assessed on quarterly access fees and maintains that such fees are nontaxable. Such fees were taxed on the basis that the fees represent services sold in connection with the taxable sale of tangible personal property.
Based on the facts presented, the Taxpayer enters into an agreement with a realtor to sell and license the use of an electronic key card, along with a unique personal identification number (PIN) to prevent others from using the card if lost or stolen. The purpose of the cards is to gain authorized entry into real property on which a keybox has been installed. Such keyboxes are loaned to realtors when a listing is made. The cards store special numeric codes and are also used to retrieve unique activity data from the keybox. Use of the card may be revoked by deactivation if the cardholder fails to pay the quarterly access fees or fails to comply with certain other terms and conditions set out in the agreement.
The Taxpayer collects sales tax on the sales price charged for the electronic key cards. However, the Taxpayer does not collect any sales tax on the quarterly access fees. The Taxpayer maintains that the purpose of the quarterly access fees is to gain access to a security system and its information. Accordingly, the Taxpayer maintains that the true object for these fees is the provision of an exempt service.
The Taxpayer also requests waiver of the penalty assessed in this case. The Taxpayer has paid the noncontested portion of the audit.
DETERMINATION
Quarterly Access Fees
For purposes of the Virginia sales and use tax, cases involving a mixed transaction, i.e., a transaction involving both a sale of tangible personal property and the provision of personal or professional services, are examined in light of the Virginia Supreme Court's ruling in WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.E. 2d 245 (1977). The court interpreted the provisions of Code of Virginia § 58.1-609.5(1) [formerly § 58-441.6(a)] in WTAR, adopting the following test:
if the "true object" sought by the buyer is the services per se, the exemption is available, but if the true object of the buyer is to obtain the property produced by the service, the exemption is not available. 217 Va. at 883.
The unique information and security provided is tailored to the specific needs of each realtor. Therefore, I must conclude that the true object of the quarterly access fees is to obtain personal access services for entry into houses or other structures, and the card only serves as the medium for securing the service. Accordingly, such fees are not taxable, and the audit assessment (i.e., bill #*****) will be abated.
For the future, but no later than August 1, 2000, the Taxpayer needs to cease charging and collecting sales tax on the electronic key cards sold in connection with access services. Instead, the Taxpayer must begin to pay the sales or use tax at the time of purchase based on the cost price of the cards. This is because cards sold with access services constitute tangible personal property used or consumed by the Taxpayer in providing its service.
Penalty
Although the Taxpayer claims that this audit was the Taxpayer's first audit, the department's records indicate otherwise. According to the department's records, this audit was the second audit of the Taxpayer. The prior audit covered the period October 1988 through September 1991. Therefore, I must consider this audit to be the Taxpayer's second audit.
Generally, penalty will not be waived on second or subsequent audits unless the compliance ratio is at an acceptable level of compliance as set out in Title 23 of the Virginia Administrative Code (VAC) 10-210-2032 or exceptional mitigating circumstances existed to cause the low compliance.
On this second audit, penalty on use tax may be waived if the compliance ratio meets or exceeds 60%. In this audit, penalty was assessed on the use tax portion of the assessment since the use tax compliance ratio was 47%. Since the use tax compliance ratio is below the acceptable level of compliance and no evidence of exceptional mitigating circumstances has been presented, I find no basis to waive the penalty assessed in this case.
Accordingly, the Taxpayer must remit $***** to the department within 30 days of the date of this letter. Upon receipt of such payment and since the Taxpayer had previously paid the noncontested tax and interest, the audit assessment (i.e., bill #*****) will be considered paid in full.
Please send such payment to the attention of ***** at the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within the allotted time. If you have any questions about this response, please contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22178R
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting correction of the sales and use tax audit assessment issued to ****** (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer provides multiple listing services to realtors. An audit for the period November 1995 through September 1998 resulted in the assessment of sales and use tax on untaxed sales and purchases.
The Taxpayer takes exception to the tax assessed on quarterly access fees and maintains that such fees are nontaxable. Such fees were taxed on the basis that the fees represent services sold in connection with the taxable sale of tangible personal property.
Based on the facts presented, the Taxpayer enters into an agreement with a realtor to sell and license the use of an electronic key card, along with a unique personal identification number (PIN) to prevent others from using the card if lost or stolen. The purpose of the cards is to gain authorized entry into real property on which a keybox has been installed. Such keyboxes are loaned to realtors when a listing is made. The cards store special numeric codes and are also used to retrieve unique activity data from the keybox. Use of the card may be revoked by deactivation if the cardholder fails to pay the quarterly access fees or fails to comply with certain other terms and conditions set out in the agreement.
The Taxpayer collects sales tax on the sales price charged for the electronic key cards. However, the Taxpayer does not collect any sales tax on the quarterly access fees. The Taxpayer maintains that the purpose of the quarterly access fees is to gain access to a security system and its information. Accordingly, the Taxpayer maintains that the true object for these fees is the provision of an exempt service.
The Taxpayer also requests waiver of the penalty assessed in this case. The Taxpayer has paid the noncontested portion of the audit.
DETERMINATION
Quarterly Access Fees
For purposes of the Virginia sales and use tax, cases involving a mixed transaction, i.e., a transaction involving both a sale of tangible personal property and the provision of personal or professional services, are examined in light of the Virginia Supreme Court's ruling in WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.E. 2d 245 (1977). The court interpreted the provisions of Code of Virginia § 58.1-609.5(1) [formerly § 58-441.6(a)] in WTAR, adopting the following test:
if the "true object" sought by the buyer is the services per se, the exemption is available, but if the true object of the buyer is to obtain the property produced by the service, the exemption is not available. 217 Va. at 883.
The unique information and security provided is tailored to the specific needs of each realtor. Therefore, I must conclude that the true object of the quarterly access fees is to obtain personal access services for entry into houses or other structures, and the card only serves as the medium for securing the service. Accordingly, such fees are not taxable, and the audit assessment (i.e., bill #*****) will be abated.
For the future, but no later than August 1, 2000, the Taxpayer needs to cease charging and collecting sales tax on the electronic key cards sold in connection with access services. Instead, the Taxpayer must begin to pay the sales or use tax at the time of purchase based on the cost price of the cards. This is because cards sold with access services constitute tangible personal property used or consumed by the Taxpayer in providing its service.
Penalty
Although the Taxpayer claims that this audit was the Taxpayer's first audit, the department's records indicate otherwise. According to the department's records, this audit was the second audit of the Taxpayer. The prior audit covered the period October 1988 through September 1991. Therefore, I must consider this audit to be the Taxpayer's second audit.
Generally, penalty will not be waived on second or subsequent audits unless the compliance ratio is at an acceptable level of compliance as set out in Title 23 of the Virginia Administrative Code (VAC) 10-210-2032 or exceptional mitigating circumstances existed to cause the low compliance.
On this second audit, penalty on use tax may be waived if the compliance ratio meets or exceeds 60%. In this audit, penalty was assessed on the use tax portion of the assessment since the use tax compliance ratio was 47%. Since the use tax compliance ratio is below the acceptable level of compliance and no evidence of exceptional mitigating circumstances has been presented, I find no basis to waive the penalty assessed in this case.
Accordingly, the Taxpayer must remit $***** to the department within 30 days of the date of this letter. Upon receipt of such payment and since the Taxpayer had previously paid the noncontested tax and interest, the audit assessment (i.e., bill #*****) will be considered paid in full.
Please send such payment to the attention of ***** at the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within the allotted time. If you have any questions about this response, please contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22178R
Rulings of the Tax Commissioner