02-164 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Locksmith, sales tax on labor charges and services charges on sale of keys

Topic

Appropriateness of Audit Methodology

Date Issued

12-18-2002

December 18, 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 department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period November 1997 through October 2000. I apologize for the delay in the department's response.

FACTS

The Taxpayer is a locksmith that was audited by the department and assessed sales tax on labor charges and services charges made in connection with the sale of keys. The Taxpayer maintains that the assessed labor or service charges are not taxable when separately stated on its invoices to customers. In this regard, the Taxpayer indicates that it is licensed by the ***** to provide "repair services." The Taxpayer also maintains that prior to 1990 department representatives advised the Taxpayer that separately stated labor charges were not subject to the tax. The Taxpayer states that it has acted on that advice.

DETERMINATION

"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 ...without any deduction [for] the cost of the property sold, the materials used, labor or service costs, losses or any other expenses whatsoever." Code of Virginia § 58.1-609.5(2) provides a specific exemption from the tax for separately stated charges for "labor or services rendered in installing, applying, remodeling or repairing property sold." Although these specified labor and service charges are exempt from the tax (when separately stated), other labor and service charges remain taxable when made in connection with the sale of tangible personal property.

The issues in this case are similar to those addressed in Public Document 98-65 (03/30/98), a copy of which was provided to the Taxpayer. In decisions by the department since 1977, the total charge for keys, including any services rendered in connection with the sale of such keys, are deemed to be taxable sales. This means that the charges for disassembly and recoding, out of shop services or any expenses whatsoever incurred in the production of keys are taxable elements of the sale of the keys even when such charges are separately stated. Travel charges made in connection with the sale of keys, which I understand are also at issue in this case, are likewise taxable, even if separately stated. The only exceptions to this rule are those services that are specified in Code of Virginia § 58.1-609.5(2).

Previous advice: With regard to any advice the Taxpayer states that it received from the department, the department's auditor was not provided with any documentation reflecting such direction from the department. Without such proof, I am unable to consider any relief from the assessment.

Local classification: You indicate that the ***** classifies the Taxpayer as a repair business for local license tax purposes. However, the retail sales and use tax is imposed by Code of Virginia § 58.1-603. That statute imposes, "in addition to all other taxes and fees of every kind now imposed by law, a license or privilege tax upon every person who engages in the business of selling at retail ... any item or article of tangible personal property ...."

For purposes of the retail sales and use tax, the Taxpayer is required to collect and remit the tax on its sales of tangible personal property. Indeed, since at least 1992, the Taxpayer has been registered with the department and has filed monthly sales and use tax returns on its sales of tangible personal property. The Taxpayer has been filing such returns regardless that it is a repair business for purposes of local taxation.

With, respect to its provision of services, the Taxpayer is not required to collect and remit the tax when it provides repair labor, provided such repair labor is separately stated on the invoice to customers. I understand that no such separately stated repair labor charges have been assessed. Further, the Taxpayer is not required to collect and remit the tax when it provides services that are not in connection with the sale of tangible personal property. Again, no service transactions (i.e., transactions in which there is no provision of tangible personal property) have been assessed.

Hearing request: Finally, you request a hearing before the appropriate body. The administrative appeals process is set out in Code of Virginia § 58.1-1821 and Title 23 of the Virginia Administrative Code 10-20-160 and 10-20-170. In the instant case, the department's policy concerning the application of the tax to the sale of keys by a locksmith is longstanding. Further, I cannot identify in your correspondence any discussion of disputed factual issues that lead me to believe that the assessment is erroneous. Consequently, I find no basis for any adjustment to the department's audit and do not believe that a hearing is necessary.

Based on the above, the assessment is correct. An updated bill, with interest accrued to date, will be sent to the Taxpayer. No additional interest will accrue provided the updated bill is paid within 30 days from the date indicated on the bill notice. If you should have any questions regarding this matter, please contact ***** of the department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.

The statutes and regulations referenced in this letter, as well as 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/36223Q

Rulings of the Tax Commissioner