Tax Type
Retail Sales and Use Tax
Description
Third Party Assistance for Employer Hiring; Personal Property and Services
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
10-01-2001
October 1, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This will reply to your letter in which you request a ruling on the application of the Virginia retail sales and use tax to the business activities of ***** (the "Taxpayer"). I apologize for the delay in the department's response.
FACTS
The Taxpayer provides an automated hiring service to retail businesses for a monthly fee. The Taxpayer provides customers with screen phones to access the hiring service. The Taxpayer maintains title to and assumes any risk associated with the screen phones. Job seekers entering a prospective place of employment are directed to use a screen phone. The job applicant completes the information requested on the screen and the data is transmitted to the Taxpayer's processing center outside Virginia. The data is analyzed using the Taxpayer's computer software. A completed job application and other reports are transmitted via fax or e-mail back to the hiring manager at the store location.
RULING
Code of Virginia § 58.1-609.5(1) provides an exemption from the sales and use tax for professional and personal service transactions which involve sales as inconsequential elements for which no separate charges are made. When determining if a particular transaction involving both the sale of tangible personal property and the provision of a service represents a sale of tangible personal property or an exempt service, the "true object" test is used. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D), copy enclosed, states that "[i]f 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."
The Taxpayer supplies a screen phone to each of its customers. The screen phone provides access to the Taxpayer's service. This is analogous to the example in Title 23 VAC 10-210-4040(D) in which transactions involving the transmittal of electronic information through a computer terminal are deemed to be exempt services. The "true object" in the example is the transmittal of information, and the computer terminal serves as a medium for securing this service. In the Taxpayer's case, the true object sought by customers is the Taxpayer's hiring service rather than the screen phones.
Based on the above, the Taxpayer's provision of the hiring service through the use of screen phones is an exempt service. Accordingly, the Taxpayer would not charge sales and use tax to its Virginia customers for providing this service. The Taxpayer notes that, in the future, it may provide the hiring service using a web-based application. The department has previously held that transactions involving the transfer of data over the Internet or by other electronic means are nontaxable services because there is no exchange of tangible personal property. If the Taxpayer provides the same hiring service to customers via the Internet, the service will continue to be nontaxable.
Title 23 VAC 10-210-4040(E) states that service providers are the taxable users and consumers of all tangible personal property purchased for use in providing exempt services. The Taxpayer is considered the taxable user or consumer of all tangible personal property used in Virginia to provide its hiring service. If sales tax is not paid at the time of purchase on the screen phones and other tangible personal property used in Virginia, the Taxpayer is liable for use tax on the cost price of such property. See the enclosed copy of Title 23 VAC 10-210-6030.
I trust the foregoing has addressed the Taxpayer's concerns. If you have any questions regarding this response, please contact ***** in the department's Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/29341S
Rulings of the Tax Commissioner