Tax Type
Retail Sales and Use Tax
Description
Erroneous assessment
Topic
Accounting Periods and Methods
Appropriateness of Audit Methodology
Date Issued
09-27-2002
September 27, 2002
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer"), for the period January 1992 through March 2001. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates a coffee service and provides coffee machines, coffee, and other related supplies to its customers. As a result of the department's audit, the Taxpayer was assessed tax on its purchases of coffee machines. The Taxpayer contends the coffee machines are leased to its customers in accordance with prior instructions issued by the department and, therefore, maintains the assessment is erroneous.
DETERMINATION
The Taxpayer's customer agreement provides that the costs of its service includes the lease of equipment. The lease amount is not specified but stated as a range of not less than one percent and not more that seven percent of the costs of the supplies furnished by the Taxpayer. Further, at the customer's request, the Taxpayer will apportion on all invoices the amount charged for the lease of equipment and the amount charged for the supplies and service.
In a letter issued to the Taxpayer on March 5, 1993, the Tax Commissioner
determined that the Taxpayer's coffee service agreement is not indicative of a true
lease. The Taxpayer was instructed that in order for the agreement to constitute a valid
lease agreement for the equipment, the agreement must contain separate lease
provisions specifically for the lease of equipment (i.e., terms and conditions, etc.) or a
separate lease agreement for the equipment must be executed. The Taxpayer has not
complied with the instructions of the Tax Commissioner and therefore the assessment
of the tax in this instance is upheld.
The Taxpayer will shortly receive an updated bill that should be paid within 30 days to avoid the accrual of additional interest charges. Because of the pending litigation of this issue, the Taxpayer may file a protective claim for refund as prescribed in Code of Virginia § 58.1-1824.
If you have questions regarding this response, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****. The Code of Virginia section cited and other reference documents are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/37290J
Rulings of the Tax Commissioner