Tax Type
Retail Sales and Use Tax
Description
Leasing tangible personal property; assessment
Topic
Appropriateness of Audit Methodology
Collection of Delinquent Tax
Penalties and Interest
Property Subject to Tax
Date Issued
04-10-2002
April 10, 2002
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter of December 3, 2001, in which you seek a reconsideration of the department's prior response regarding the retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period June 1995 through May 2001.
FACTS
The Taxpayer operates a dental office. The contested issue in this case involves the untaxed lease of medical equipment. The Taxpayer contends that it is not "in the business" of leasing tangible personal property and seeks an abatement of the department's assessment.
DETERMINATION
The department's response dated November 28, 2001, held that the lease payments were subject to the tax and upheld the audit assessment. In that letter, it was explained that virtually any transaction involving a consideration, including transfers or rentals between businesses that share common ownership, is subject to the sales and use tax unless some specific exemption applies. You contend that the Taxpayer is not "in the business" of leasing tangible personal property.
Code of Virginia § 58.1-603 imposes the sales tax upon "every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth, or who rents or furnishes any of the things or services taxable under this chapter... or who leases or rents such property within this Commonwealth." The tax is imposed on the gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business, or part of an established business, or incidental or germane to such business.
This section clearly confirms that it is the intent of the sales and use tax law to tax those leases made by one in the business of making such leases. Therefore, the question to be addressed in this instance is whether the lessor is in the business of making such leases.
"Lease" is defined in Code of Virginia § 58.1-602 as "the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without transfer of the title to such property."
"Business" is defined in Code of Virginia § 58.1-602 as "any activity engaged in by any person, or caused to be engaged in by him, with the object of gain, benefit or advantage, either directly or indirectly." Based on a review of the audit report and the information provided by the Taxpayer, I conclude that the Taxpayer is engaged in an activity with the object of an indirect gain, benefit or advantage. Therefore, based on the definition of business for sales and use tax purposes, the Taxpayer is in the business of leasing tangible personal property and thus engaged in a transaction that is subject to the sales and use tax. I have enclosed Public Document 88-215 (07/27/88), which further details the department's longstanding position.
Accordingly, there is no basis to alter my previous determination. Based on the foregoing, 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. If payment is not received within the allotted time, interest will continue to accrue on the outstanding balance and collection action will resume.
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 *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/37739Q
Rulings of the Tax Commissioner