Tax Type
Retail Sales and Use Tax
Description
Photograph sales to law firm
Topic
Taxability of Persons and Transactions
Date Issued
05-15-2001
May 15, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****:
This is in response to your letter requesting correction of the use tax assessment issued to (the "Taxpayer") as a result of an audit. I apologize for the delay in responding. Copies of cited sources are enclosed.
FACTS
The Taxpayer is primarily a plaintiffs personal injury law firm. An audit for the period April 1994 through June 2000 resulted in the assessment of use tax on untaxed purchases of tangible personal property used or consumed in the Taxpayer's practice.
The Taxpayer takes exception to the use tax assessed on charges for photographs taken of vehicle damage. The Taxpayer hires an independent contractor to investigate and document damage to clients' vehicles. As a part of the investigative process, the contractor photographs the damage to preserve evidence and provides such documentary photographs to the Taxpayer. The audit report reveals that a $25 fee was generally charged for four photographs. The Taxpayer was also charged for mileage and additional photographs. The Taxpayer maintains that such charges constitute nontaxable services.
DETERMINATION
In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. See Title 23 of the Virginia Administrative Code ("VAC") 10-210-4040(D).
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 the service produces, then the entire charge, including the charge for any services provided, is taxable. (Emphasis added.)
Based on the information presented, I find that the "true object" of the transactions at issue is to obtain the tangible photographs. Although the investigative work performed by the contractor may be essential, the photographs themselves are certainly a critical element of the transaction.
Further, the application of the tax to the Taxpayer's documentary photographs is consistent with 23 VAC 10-210-2050. This regulation indicates that the tax applies to sales of photographs, portraits, and prints. This regulation also indicates that the tax applies to the total charge to the customer for a photograph, slide, etc., including, but not limited to, charges for labor, photocomposition, setting design, photography time, and any other components of the charge, regardless of whether such components are separately stated.
Accordingly, the tax assessed on documentary photographs is correct. Since the assessment has not been paid in full, the Taxpayer will soon receive a bill for the current outstanding liability of ****. To avoid further interest charges, the updated bill should be paid in full within 45 days of the date of this letter.
If you have any questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****:
This is in response to your letter requesting correction of the use tax assessment issued to (the "Taxpayer") as a result of an audit. I apologize for the delay in responding. Copies of cited sources are enclosed.
FACTS
The Taxpayer is primarily a plaintiffs personal injury law firm. An audit for the period April 1994 through June 2000 resulted in the assessment of use tax on untaxed purchases of tangible personal property used or consumed in the Taxpayer's practice.
The Taxpayer takes exception to the use tax assessed on charges for photographs taken of vehicle damage. The Taxpayer hires an independent contractor to investigate and document damage to clients' vehicles. As a part of the investigative process, the contractor photographs the damage to preserve evidence and provides such documentary photographs to the Taxpayer. The audit report reveals that a $25 fee was generally charged for four photographs. The Taxpayer was also charged for mileage and additional photographs. The Taxpayer maintains that such charges constitute nontaxable services.
DETERMINATION
In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. See Title 23 of the Virginia Administrative Code ("VAC") 10-210-4040(D).
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 the service produces, then the entire charge, including the charge for any services provided, is taxable. (Emphasis added.)
Based on the information presented, I find that the "true object" of the transactions at issue is to obtain the tangible photographs. Although the investigative work performed by the contractor may be essential, the photographs themselves are certainly a critical element of the transaction.
Further, the application of the tax to the Taxpayer's documentary photographs is consistent with 23 VAC 10-210-2050. This regulation indicates that the tax applies to sales of photographs, portraits, and prints. This regulation also indicates that the tax applies to the total charge to the customer for a photograph, slide, etc., including, but not limited to, charges for labor, photocomposition, setting design, photography time, and any other components of the charge, regardless of whether such components are separately stated.
Accordingly, the tax assessed on documentary photographs is correct. Since the assessment has not been paid in full, the Taxpayer will soon receive a bill for the current outstanding liability of ****. To avoid further interest charges, the updated bill should be paid in full within 45 days of the date of this letter.
If you have any questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner