Tax Type
Retail Sales and Use Tax
Description
Tangible Personal Property and exemptions
Topic
Appropriateness of Audit Methodology
Property Subject to Tax
Date Issued
07-12-2002
July 12, 2002
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 audit assessment issued to ***** (the "Taxpayer") for the period January 1997 through December 1999. I apologize for the delay in the department's response.
FACTS
The Taxpayer takes orders for specific printing jobs, contracts out the design work, mail shop and printing to third parties, and charges its customers for the actual printed materials, itemized services, freight and delivery charges. You indicate that at the time the Taxpayer registered for the collection of the tax, it was advised by the department to collect tax on all tangible personal property sold, but services would be exempt. Since the inception of the Taxpayer's business, the Taxpayer has collected tax on the actual tangible personal property sold; sales tax has not been charged on the services in connection with the sale of the property.
The Taxpayer was audited and assessed sales tax on all charges for services in connection with the sale of tangible personal property. The Taxpayer believes that it has been operating correctly based on instructions received from the department and requests abatement of the assessment.
DETERMINATION
Code of Virginia § 58.1-609.5(1) provides an exemption from the retail sales and use tax for professional and personal service transactions that 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 "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." On the other hand if the true object of the transaction is to secure the tangible personal property, the entire charge, including the charge for any services provided, is taxable.
In the Taxpayer's situation, the true object of the transaction is the actual printed material sold to customers. Absent the provision of printed materials, the services, i.e., design, mail shop services, etc., are of no value to the customer. Accordingly, the entire charge to the Taxpayer's clients, less any separately stated delivery charges, is subject to the sales tax.
Furthermore, under Code of Virginia § 58.1-603, the sales tax is computed upon the "sales price" of tangible personal property. The term "sales price" is defined in Code of Virginia § 58.1-602 as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale."
You contend that the Taxpayer relied on information furnished by the department; therefore, it should be granted relief of the assessed tax. Absent written documentation regarding the questions presented to and instructions provided by the department, I am unable to grant relief in this case.
Based on the foregoing, I find the audit assessment is correct. You state that payment of the audit assessment would place a financial hardship on the Taxpayer. In such cases, the department may establish a partial payment plan to satisfy an outstanding tax liability. I have enclosed Form CS-21, Collection Information Statement for Businesses, which the Taxpayer must complete to apply for a partial payment agreement. This form may be sent to the Virginia Department of Taxation, Collections Unit, P.O. Box 2156, Richmond, Virginia 23218-2156. A letter requesting a partial payment plan and a copy of this letter should accompany your application.
If you have any questions regarding this determination, you may contact ***** Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
PD/34707K
Rulings of the Tax Commissioner