Tax Type
Retail Sales and Use Tax
Description
Independent transactions/ separate and distinct transactions.
Topic
Appropriateness of Audit Methodology
Taxability of Persons and Transactions
Date Issued
09-08-2004
September 8, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ***********:
This will reply to your letter in which you seek correction of a retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period September 1999 through August 2002. I note that the uncontested portion of the assessment has been paid. I apologize for the delay in the Department's response.
FACTS
As a result of the Department's audit, the Taxpayer was assessed tax on the purchase of laser personalization and mailing services. In this case, the Taxpayer purchases stock paper from a printer and has the printer print the Taxpayer's logo and perforation line on the paper to create a "process renewal invoice" for customer billing. The printer prints 100,000 renewal invoices on a monthly basis and stores the stock invoices at its location. The printer pulls approximately 20,000 invoices a week from the Taxpayer's paper stock and performs laser personalization and mailing services. The printer separately bills the Taxpayer for the initial printing of the paper stock and charges sales tax. No sales tax is charged on the invoice for services provided to process the renewal invoices, i.e., printing the customer information, sorting, etc. The auditor considered the processing services a service in connection with the sale of the renewal invoices and subject to the tax. The Taxpayer contests the taxation of the processing services and maintains that the contested charges are exempt because the purchase of paper stock and processing services are two separate and distinct transactions.
DETERMINATION
To determine whether the contested services in this case are subject to taxation as being part of the retail sale of tangible personal property, we must first look at whether the transactions at issue are independent transactions or one transaction. To help in this determination, we look to the law of contracts for Virginia that is generally set out in Michie's Jurisprudence ("M.J."). Specifically, § 49 of 4A M.J. on Contracts addresses whether separate writings are part of the same transaction, as follows:
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- Where two contracts are so connected as to be parts of the same transaction, they will be read together, and the court may look to one in construing the other. Thus, where two papers are executed at the same time, or contemporaneously, between the same parties, in reference to the same subject matter, they must be regarded as parts of one transaction and receive the same construction as if their several provisions were in one and the same instrument.
In this instance, the essential nature or subject matter of both transactions is the complete renewal invoices. Moreover, the renewal invoices appear to be useless or ineffective to the Taxpayer without the desired laser personalization and mailing services. The Taxpayer's decision to purchase paper stock and services simultaneously from the same printer demonstrates the Taxpayer's intent to purchase a finished product. Accordingly, these transactions do not appear to be separate, independent agreements. Rather, the information provided indicates that the purchase of paper stock and laser personalization and mailing services are so connected as to be parts of the same transaction.
Further, in Public Document (P. D.) 97-137 (3/21/97), the Department addressed the taxation of service charges in connection with the sale of tangible personal property and when such services are independent of the sale of the product. The taxpayer in that case fabricated and sold furniture, giving the customer the option of buying the furniture unfinished or finished. The Tax Commissioner determined that a customer's decision to buy a product in a finished condition did not constitute two separate and distinct transactions and deemed the finishing charges taxable. The finishing services would be exempt of the tax only in a situation where the customer purchased unfinished furniture and decided at a later date to have the furniture finished.
Because the transactions are so closely related and occurred simultaneously, I find that the purchase of the paper stock and services are part of the same transaction. Pursuant to Va. Code § 58.1-602, "sales price" "means the total amount for which tangible personal property or services are sold, including any services that are a part of the sale ...." (Emphasis added.)
Based on the foregoing, the assessment is correct. The Taxpayer will receive an updated bill including accrued interest charges. The bill should be paid within 30 days from the date of the bill to avoid the accrual of additional interest charges.
The Code of Virginia, regulations and public documents cited are available on-line in the Tax Policy section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/44084T
Rulings of the Tax Commissioner