Document Number
03-59
Tax Type
Retail Sales and Use Tax
Description
Entertainment and amusement facility
Topic
Property Subject to Tax
Date Issued
08-13-2003

August 13, 2003


Re: Request for Ruling: Retail Sales and Use Tax


Dear *****:

This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you request a ruling regarding the applicability of the retail sales tax to services and products provided by the Taxpayer.
FACTS

The Taxpayer operates a Driving School, Rally Course and Go-Cart Course. The various activities are open to the general public with no general admission fee required to enter the grounds. Customers may use the Taxpayer's vehicles and equipment, or may elect to bring their own vehicles and equipment. Where customers choose to use their own equipment, the Taxpayer offers the use of its track and off-road course with or without instruction.

You provided the following scenarios, and the Department makes a ruling as to each:
    • 1.Rally Course, Four Wheel Drive and Sport Utility Vehicle (SUV), and All Terrain Vehicle (ATV) Course
      a. Customers bring their own vehicles and are charged to use the track;
      b. Customers use the Taxpayer's vehicles and use the track, and are charged for usage of both;
      c. Customers use the Taxpayer's vehicles, use the track and receive instruction, with a separate charge for each.
    • 2. Sports Car Club of America License
      a. Customers bring their own vehicles and are charged to use the track;
      b. Customers use the Taxpayer's vehicles and use the track, and are charged for usage of both;
    • c. Customers use the Taxpayer's vehicles, use the track and receive instruction, with a separate charge for each.
    • 3. Ride Along - Customers ride in a race car on the track as a passenger; the
      • charge is split between the use of the equipment and the use of the facilities
        including the services of the professional driver.
    • 4. Go-Carts
      a. Customers bring their own go-carts and are charged to use the track;
      b. Customers use the Taxpayer's go-carts and use the track, and are charged for usage of both;
      c. Customers use the Taxpayer's go-carts, use the track and receive instruction, with a separate charge for each.

You characterize the Taxpayer's operation as an entertainment and amusement facility. You further maintain that because the use of the tangible personal property is so integrally a part of this entertainment and amusement facility, the Taxpayer's charges to its customers should not be subject to the Virginia Sales Tax. Additionally, you maintain that no actual sale or transfer of tangible personal property occurs, nor does the tangible personal property leave the Taxpayer's facility.
RULING

Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(A) provides that:
    • Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable. Transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated. As explained in subsection D of this section, the "true object" test is used to determine the taxability of these transactions.
    • Title 23 VAC 10-210-4040(D) provides that:
    • In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. 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.

The "true object" test is applied to determine whether the tax is applicable to each of the scenarios presented.

Scenario 1(a) - This transaction involves the sale of a service. Pursuant to 23 VAC 10-210-4040, services generally are exempt from the retail sales and use tax. Accordingly, this transaction is exempt from the sales tax.

Scenario 1(b) - This transaction involves both the rendering of a service and the provision of tangible personal property. Pursuant to 23 VAC 10-210-4040, the true object of this transaction is the service provided. Accordingly, the entire transaction is exempt from the sales tax.

Scenario 1(c) - This transaction involves both the rendering of a service and the provision of tangible personal property. Pursuant to 23 VAC 10-210-4040, the true object of this transaction is the service provided. Accordingly, the entire transaction is exempt from the sales tax.
    • Scenario 2(a) - Same as Scenario 1(a).

Scenario 2(b) - Same as Scenario 1(b).
    • Scenario 2(c) - Same as Scenario 1(c).

Scenario 3 - This transaction involves the rendering of a service. Pursuant to 23 VAC 10-210-4040, services generally are exempt from the retail sales and use tax. Accordingly, this transaction is exempt from the sales tax.
    • Scenario 4(a) - Same as Scenario 1(a).
    • Scenario 4(b) - Same as Scenario 1(b).
    • Scenario 4(c) - Same as Scenario 1(c).

Additionally, 23 VAC 10-210-30 provides that "the tax does not apply ... to charges made for participation in games or amusement activities." Accordingly, the tax would not apply to the scenarios listed above as they constitute amusement activities.

Pursuant to Va. Code § 58.1-604, a taxpayer is required to pay the use tax on the use or consumption of tangible personal property in this Commonwealth. In this instance, the Taxpayer would be required to pay the tax on all purchases of equipment and all other tangible personal property used by the Taxpayer to provide its services. However, it is not clear from your letter if the Virginia Department of Motor Vehicles requires the Taxpayer to pay the Motor Vehicle Sales and Use Tax on its vehicles. If the Motor Vehicle Sales and Use Tax is levied and paid, the vehicles will not be subject to the Retail Sales and Use Tax.

The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have additional questions, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner

AR/44283P

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46