Tax Type
Retail Sales and Use Tax
Description
Leases subject to tax
Topic
Taxability of Persons and Transactions
Date Issued
12-10-2001
December 10, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter seeking correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is an out-of-state lessor of tangible personal property. An audit for the period April 1994 through July 1997 resulted in the assessment of use tax assessed on untaxed leases and untaxed late charges made in connection with leases to Virginia customers.
The Taxpayer contests all of the leases held in the audit and maintains that these leases are not taxable. The assessment has been paid. Accordingly, the Taxpayer requests a refund of the contested tax and interest paid.
DETERMINATION
Based on facts presented, the charges made to ***** will be removed from the audit. The remaining contested item is addressed below.
***** ("Lessee")
Based on the documents received, the Taxpayer became an assignee of the former lessor of equipment leased to Lessee. The assignment agreement conveys ("sells, assigns, transfers") the leased personal property to the Taxpayer with all rights, including title and interest, in such property. The assignor lost all title to the property but was appointed to "invoice and receive any payment for rent-in trust for the benefit of (the Taxpayer), and (such amounts) ...shall be remitted to (the Taxpayer) in the same form as received, with any necessary endorsements." The assignment agreement makes no mention that the assignor would collect and remit sales tax on behalf of the Taxpayer. Clearly, the only assignor's duties stipulated under the contract were "billing and invoicing services" for the Taxpayer.
You maintain that the assignor as the original (but former) lessor collected sales tax on the rental payments and remitted it to the department. A review of the assignment agreement also indicates that assignor was to collect from the Lessee installments of ***** (plus tax)." This does not explain what type of tax, such as sales, personal property, etc. In addition, the assignment is silent as whether the Taxpayer or assignor will remit the sales tax to the department.
Furthermore, you have not furnished any evidence that sales tax was collected and remitted to the department by the Taxpayer or by the assignor. You had also mentioned that some additional documentation from the assignor was to be presented to the department. A member of my Policy Development staff had requested that you forward such information to him. However, such records have not been received.
Based on the records furnished, it is clear that the Taxpayer became the new lessor of the equipment at issue. As lessor, the Taxpayer is ultimately liable for collecting and remitting the sales tax to the department. See Title 23 of the Virginia Administrative Code (VAC) 10-210-840, copy enclosed. Without evidence that sales tax was remitted on these particular leased items by either the Taxpayer or the assignor, I find no basis for removing these items from the audit at this time.
In the event the Taxpayer finds complete documentation to establish the collection and remittance of the sales tax on this leased equipment, the audit may be revised accordingly if the information is received by the department within the statute of limitations as set out in Code of Virginia § 58.1-1824, copy enclosed.
Penalty
The sales tax compliance ratio on this third audit is 79%. On third and subsequent audits, it has been the department's established policy that penalty applies to a sales tax assessment unless the sales tax compliance ratio meets or exceeds 85%. See 23 VAC 10-210-2032. Based on the proposed revisions, the revised sales tax compliance ratio will increase to almost 84%. Although this is close to an acceptable level of compliance, it does not meet or exceed the required threshold and penalty still applies.
Conclusion
The audit will be revised in accordance with this determination, and the overpaid tax and interest will be refunded to the Taxpayer as soon as practical. Such refund will include interest owed the Taxpayer pursuant to Code of Virginia § 58.1-1833.
The information requested concerning the assignee issue discussed above should be sent to the attention of ***** at the Department of Taxation, Office of Policy and Administration, Appeals and Rulings, Post Office Box 1880, Richmond, Virginia 23218-1880.
If you have any questions about the revision, please contact *****, Senior Auditor of the department's ***** at *****. If you have any questions regarding this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/22062R
Rulings of the Tax Commissioner