Tax Type
Retail Sales and Use Tax
Description
Finance charges, clinical laboratory
Topic
Exemptions
Date Issued
05-25-2001
May 25, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting a ruling on the application of the retail sales and use tax to certain charges made to clinical laboratories. I apologize for the delay in responding to your letter.
FACTS
A clinical laboratory, company ("Operating Company") offers numerous tests for use by the medical profession. The Operating Company is contemplating centralizing its procurement function into a separate special purpose entity ("Purchasing Company") to benefit from quantity discounts. The Purchasing Company will purchase for resale all supplies and equipment from third party vendors and resell them to the Operating Company in a short-term financed transaction.
In order to pay for ongoing administrative and maintenance costs of the Purchasing Company, the Purchasing Company will charge the Operating Company a fee upon resale of the equipment and supplies to the Operating Company. The Purchasing Company will discount the sales price by 10-15% below cost, such that the discounted sales price and the proposed fee when combined, form the economic equivalent of a non-financed sale.
You describe the proposed fee as a finance charge and maintain that such fee should not be included in the taxable sales price based on the exceptions set out in the definition of the term "sales price" at Code of Virginia § 58.1-602.
RULING
Code of Virginia § 58.1-602 excludes from the definition of "sales price" the following charges: "finance charges, carrying, service charges or interest from credit extended on sales of tangible personal property under conditional sale contracts or other conditional contracts providing for deferred payments of the purchase price."
The term "finance charges" is not defined by the Virginia Retail Sales and Use Tax Act. However, Black's Law Dictionary (1990) defines "finance charge" as "[t]he consideration for privilege of deferring payments of purchase price."
Based on the facts submitted, the proposed fees appear to be analogous to overhead or operating costs, which are not statutorily excluded from the taxable sales price. Moreover, you have not established that the transactions constitute installment sales or that the proposed fees are only for the privilege of deferring payments of the purchase price under an installment or conditional sales transaction. Accordingly, I find that the proposed fees are not finance charges as contemplated for exclusion from the taxable sales price under Code of Virginia § 58.1-602.
If you have questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31204R
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting a ruling on the application of the retail sales and use tax to certain charges made to clinical laboratories. I apologize for the delay in responding to your letter.
FACTS
A clinical laboratory, company ("Operating Company") offers numerous tests for use by the medical profession. The Operating Company is contemplating centralizing its procurement function into a separate special purpose entity ("Purchasing Company") to benefit from quantity discounts. The Purchasing Company will purchase for resale all supplies and equipment from third party vendors and resell them to the Operating Company in a short-term financed transaction.
In order to pay for ongoing administrative and maintenance costs of the Purchasing Company, the Purchasing Company will charge the Operating Company a fee upon resale of the equipment and supplies to the Operating Company. The Purchasing Company will discount the sales price by 10-15% below cost, such that the discounted sales price and the proposed fee when combined, form the economic equivalent of a non-financed sale.
You describe the proposed fee as a finance charge and maintain that such fee should not be included in the taxable sales price based on the exceptions set out in the definition of the term "sales price" at Code of Virginia § 58.1-602.
RULING
Code of Virginia § 58.1-602 excludes from the definition of "sales price" the following charges: "finance charges, carrying, service charges or interest from credit extended on sales of tangible personal property under conditional sale contracts or other conditional contracts providing for deferred payments of the purchase price."
The term "finance charges" is not defined by the Virginia Retail Sales and Use Tax Act. However, Black's Law Dictionary (1990) defines "finance charge" as "[t]he consideration for privilege of deferring payments of purchase price."
Based on the facts submitted, the proposed fees appear to be analogous to overhead or operating costs, which are not statutorily excluded from the taxable sales price. Moreover, you have not established that the transactions constitute installment sales or that the proposed fees are only for the privilege of deferring payments of the purchase price under an installment or conditional sales transaction. Accordingly, I find that the proposed fees are not finance charges as contemplated for exclusion from the taxable sales price under Code of Virginia § 58.1-602.
If you have questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31204R
Rulings of the Tax Commissioner