Tax Type
Retail Sales and Use Tax
Description
Sales to automobile dealerships
Topic
Basis of Tax
Documents Subject to Tax
Date Issued
08-16-2002
August 16, 2002
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This references your previous letter and conversation with a member of my staff in which you request a ruling regarding the application of the retail sales and use tax to various sales to automobile dealers by your client (the "Taxpayer"). I apologize for the delay in the department's response.
FACTS
The Taxpayer questions its sale of a "product" to automobile dealerships. The Taxpayer will approach dealerships providing that it will attach a special label to each of the dealership's cars which gives the customer a synopsis of the car's attributes. Such descriptions include, but are not limited to color, model and make of the car, stereo tape/CD player, speed control, bucket seats, four wheel drive, automatic transmission and other such desirable features. In addition to labels for the autos, the Taxpayer will enter this same data onto a computer website along with a digital picture of each car to enable potential customers to visit the dealer electronically. The Taxpayer will also give to dealers an inventory report of all cars labeled. The dealer is billed a set fee per car.
RULING
Code of Virginia § 58.1-609.5(1) provides that the sales and use tax does not apply to "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made ...."
In addition, Title 23 of the Virginia Administrative Code 10-210-4040 sets forth the "true object" test to determine whether a particular transaction involves the taxable sale of tangible personal property or the provision of as exempt service. This regulation provides that:
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- 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 it produces, then the entire charge, including the charge for any services provided, is taxable.
In the present case, I find the "true object" sought by the dealerships is the advertising of the automobiles rather than the "purchase" of any tangible personal property. Accordingly, the Taxpayer is properly classified as a service provider. Please note that Title 23 VAC 10-210-4040 (E) also provides that "a service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services." Therefore, the Taxpayer is liable for the payment of the sales tax to its suppliers of tangible personal property used in Virginia in providing its services.
I trust that the foregoing has answered your questions. If you have any additional questions on the content of this response, please contact ***** of the department's Office of Policy and Administration, Appeals and Rulings at *****@tax.state.va.us or at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/37465Q
Rulings of the Tax Commissioner