Tax Type
Retail Sales and Use Tax
Description
Copying service
Topic
Taxability of Persons and Transactions
Date Issued
07-06-2000
July 6, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to your client, ****** (the "Taxpayer"), for the period March 1995 through May 1998.
FACTS
The Taxpayer provides appellate support and copying services to attorneys with appeals pending in both federal and state courts. The Taxpayer employs a professionally-trained staff that advises clients on the proper procedures, forms, format, and other procedural issues in filing appellate briefs and court documents with the various federal and state courts. Once the client has prepared the court documents, the documents are submitted to the Taxpayer via computer disk or E-mail for review by the Taxpayer to ensure that the documents conform to the requirements mandated by the various courts. Once the Taxpayer has completed its review for compliance, the Taxpayer duplicates the document, files the requisite number of copies of each document with the court, serves the document on opposing counsel, and provides copies of the documents to the client, along with date-stamped verification of filing.
The Taxpayer's pricing structure is typically a fixed price per page or base rate plus price per page. The Taxpayer was audited as a printing/copying service company and assessed tax on the sale of all court documents sold to law firms. The Taxpayer is taking exception to the audit findings on the basis that it is providing exempt professional services, and the documents produced are inconsequential to the "true object" of the transaction. The Taxpayer bases this contention on Code of Virginia § 58.1-609.5(1) and Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D).
DETERMINATION
Service vs. Sales of Tangible Personal Property
Code of Virginia § 58.1-609.5(1) provides a retail sales and use tax exemption for "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made ...." The department interprets this statutory exemption through VAC 10-210-4040, copy enclosed. Subsection D of this regulation describes the department's method of determining the nature of a transaction, i.e., service vs. sale of tangible personal property, and the "true object" test as follows:
In order to determine whether a particular transaction which involves both the rendering of a service and provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.
In the present case, the Taxpayer's customers provide to the Taxpayer all briefs and court documents in the form of computer disk or E-mail. It is the responsibility of the Taxpayer to ensure that the documents meet the requirements mandated by the various federal and state courts and provide the appropriate number of copies to the customer. It must be determined if the "true object" sought by the customer is the expertise of the Taxpayer on judicial forms and procedures required by the various courts, or the provision of tangible personal property, i.e., the actual documents.
Based on the reading of the above statute and regulation, I find that the Taxpayer is operating in a dual manner of providing both nontaxable services and also selling tangible personal property. The Taxpayer is providing a nontaxable service with respect to the original court document prepared for its customer. The Taxpayer goes beyond the rendition of this service when it duplicates original court documents for distribution to third parties.
The 1997 General Assembly passed House Bill 1725 (effective July 1, 1997), which provides an exemption from the retail sales and use tax for "a professional's provision of original, revised, edited, reformatted or copied documents, including but not limited to documents stored on or transmitted by electronic media, to its client or to third parties in the course of the professional's rendition of services to its clientele." See Code of Virginia § 58.1-609.10(15) enclosed.
Based on all of the above, I find that prior to July 1, 1997, the Taxpayer was operating in the dual capacity of providing tax exempt services with respect to the provision of original court documents, and also selling tangible personal property with respect to the sale of all duplicate copies. The sales of duplicate copies made prior to July 1, 1997 are taxable and will remain in the audit. However, based on Code of Virginia § 58.1-609.10(15), all sales of copied documents to third parties on or after July 1, 1997, are exempt from the tax and will be removed from the audit.
Audit Penalty
In regard to the audit penalty, due to the fact that at the conclusion of its first audit the Taxpayer was advised that it was providing a nontaxable service, I will agree to waive the audit penalty associated with the current audit period.
An auditor from the, ***** District Office will contact the Taxpayer to make the appropriate revisions. Once the revisions are made, the Taxpayer will receive a revised audit assessment. If you should have any questions concerning this determination, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17711K
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to your client, ****** (the "Taxpayer"), for the period March 1995 through May 1998.
FACTS
The Taxpayer provides appellate support and copying services to attorneys with appeals pending in both federal and state courts. The Taxpayer employs a professionally-trained staff that advises clients on the proper procedures, forms, format, and other procedural issues in filing appellate briefs and court documents with the various federal and state courts. Once the client has prepared the court documents, the documents are submitted to the Taxpayer via computer disk or E-mail for review by the Taxpayer to ensure that the documents conform to the requirements mandated by the various courts. Once the Taxpayer has completed its review for compliance, the Taxpayer duplicates the document, files the requisite number of copies of each document with the court, serves the document on opposing counsel, and provides copies of the documents to the client, along with date-stamped verification of filing.
The Taxpayer's pricing structure is typically a fixed price per page or base rate plus price per page. The Taxpayer was audited as a printing/copying service company and assessed tax on the sale of all court documents sold to law firms. The Taxpayer is taking exception to the audit findings on the basis that it is providing exempt professional services, and the documents produced are inconsequential to the "true object" of the transaction. The Taxpayer bases this contention on Code of Virginia § 58.1-609.5(1) and Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D).
DETERMINATION
Service vs. Sales of Tangible Personal Property
Code of Virginia § 58.1-609.5(1) provides a retail sales and use tax exemption for "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made ...." The department interprets this statutory exemption through VAC 10-210-4040, copy enclosed. Subsection D of this regulation describes the department's method of determining the nature of a transaction, i.e., service vs. sale of tangible personal property, and the "true object" test as follows:
In order to determine whether a particular transaction which involves both the rendering of a service and provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.
In the present case, the Taxpayer's customers provide to the Taxpayer all briefs and court documents in the form of computer disk or E-mail. It is the responsibility of the Taxpayer to ensure that the documents meet the requirements mandated by the various federal and state courts and provide the appropriate number of copies to the customer. It must be determined if the "true object" sought by the customer is the expertise of the Taxpayer on judicial forms and procedures required by the various courts, or the provision of tangible personal property, i.e., the actual documents.
Based on the reading of the above statute and regulation, I find that the Taxpayer is operating in a dual manner of providing both nontaxable services and also selling tangible personal property. The Taxpayer is providing a nontaxable service with respect to the original court document prepared for its customer. The Taxpayer goes beyond the rendition of this service when it duplicates original court documents for distribution to third parties.
The 1997 General Assembly passed House Bill 1725 (effective July 1, 1997), which provides an exemption from the retail sales and use tax for "a professional's provision of original, revised, edited, reformatted or copied documents, including but not limited to documents stored on or transmitted by electronic media, to its client or to third parties in the course of the professional's rendition of services to its clientele." See Code of Virginia § 58.1-609.10(15) enclosed.
Based on all of the above, I find that prior to July 1, 1997, the Taxpayer was operating in the dual capacity of providing tax exempt services with respect to the provision of original court documents, and also selling tangible personal property with respect to the sale of all duplicate copies. The sales of duplicate copies made prior to July 1, 1997 are taxable and will remain in the audit. However, based on Code of Virginia § 58.1-609.10(15), all sales of copied documents to third parties on or after July 1, 1997, are exempt from the tax and will be removed from the audit.
Audit Penalty
In regard to the audit penalty, due to the fact that at the conclusion of its first audit the Taxpayer was advised that it was providing a nontaxable service, I will agree to waive the audit penalty associated with the current audit period.
An auditor from the, ***** District Office will contact the Taxpayer to make the appropriate revisions. Once the revisions are made, the Taxpayer will receive a revised audit assessment. If you should have any questions concerning this determination, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17711K
Rulings of the Tax Commissioner