Tax Type
Retail Sales and Use Tax
Description
Automobile Dealership; Shop Supplies and Environmental Charges
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
10-19-2001
October 19, 2001
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 assessments issued to ***** (collectively, the "Taxpayer") spanning the periods July 1996 through July 1999. I apologize for the delay in the department's response.
FACTS
The Taxpayer operates a chain of automobile dealerships. The Taxpayer was assessed sales tax on a lump sum charge billed to repair customers and referred to on invoices as "environmental supplies and/or waste." The Taxpayer bills customers this charge to recover costs for the disposal or recycling of materials such as motor oil, antifreeze, tires, metals, and other potentially hazardous materials. The Taxpayer maintains that the environmental charges include the cost of shop supplies used to perform repair work. The Taxpayer contends it paid sales taxes to vendors at the time the shop supplies were purchased. For this reason, the Taxpayer suggests that the assessment of sales tax on the environmental charges represents double taxation and that the environmental charges should be removed from the audit.
The Taxpayer also contests the assessment of use tax on purchases of key rings given to each purchaser of a new automobile. The Taxpayer suggests the key rings qualify for the resale exemption because the price of the key ring is included in the sales price of the motor vehicle.
DETERMINATION
Environmental Charges
The application of the tax to these charges is set out in Tax Bulletin 94-10. The Tax Bulletin provides that the tax applies to charges made for the disposal of tires, antifreeze, motor oil, and like items when such charges are made in connection with the sale of tangible personal property. In the present case, the Taxpayer is imposing these charges when performing repair work in which tangible personal property is transferred to customers. Based on Tax Bulletin 94-10, the assessment of sales tax on environmental charges is correct because these charges are made in connection with the sale of tangible personal property.
Shop Supply Charges
The department has previously ruled that shop supplies are used and consumed by automobile dealerships in the performance of repair services for customers. As such, automobile dealerships are required to pay sales or use tax on shop supplies at the time of purchase. See the enclosed copy of Public Document 87-275 (12/23/87). Thus, the Taxpayer was correct in paying sales taxes on shop supplies at the time of purchase. In this case, however, nontaxable shop supply charges were combined with taxable environmental charges. Because the nontaxable shop supply charges were not separately stated on invoices to customers, the auditor properly held the entire charge as taxable.
Notwithstanding the above, I will agree to remove the shop supply charges from the assessments. This action is justified because the Taxpayer can provide internal records to separate the shop supply charges from the environmental charges, and this is the first audit in which this type of transaction is an issue. For the future, the Taxpayer will be expected to separately state nontaxable shop supply charges on its invoices to customers. Credits will be allowed against the assessments based on the Taxpayer's documentation showing the amount of sales taxes paid on shop supply charges.
Key Rings
The Taxpayer purchases elegant key rings that are given. to customers that purchase certain types of motor vehicles. The purchase of the key rings was held taxable by the auditor, as the Taxpayer was considered to be using the key rings for promotional purposes. The Taxpayer maintains that the key rings qualify for the resale exemption because they are included in the sales price of the motor vehicles.
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- Title 23 of the Virginia Administrative Code (VAC) 10-210-990(C) states:
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- [t]he retail sales and use tax does not apply to repair and replacement parts and accessories and oil and grease installed on a motor vehicle before or at the time of sale, lease or rental that are included in the sales price for measuring the motor vehicle sales and use tax or the retail sales and use tax.
I cannot agree with the Taxpayer's contention that the key rings qualify for the resale exemption. For accounting purposes, the Taxpayer treats the purchase of the key rings as an expense. The Taxpayer has not provided evidence that the cost of the key rings is included in the sales price of motor vehicles. The key rings are not a motor vehicle accessory. The purchase of the key rings does not meet the requirements for exemption discussed in Title 23 VAC 10-210-990. For these reasons, use tax was properly assessed on the Taxpayer's purchase of the key rings.
I will have the department's auditor contact the Taxpayer to set up a mutually agreeable time to review the shop supply charges and adjust the assessments. If the Taxpayer has any questions, please contact ***** in the department's Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
PD/28490S
Rulings of the Tax Commissioner