Tax Type
Retail Sales and Use Tax
Description
Tax on charges for finishing services on sale of unfinished furniture.
Topic
Assessment
Collection of Tax
Date Issued
09-14-2004
September 14, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period of February 2000 through December 2002. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer sells unfinished and finished furniture at retail. As a result of an audit by the Department, the Taxpayer was assessed tax on charges for finishing services rendered in connection with the sale of furniture. You maintain that the charges are for tax exempt services, and the tax was erroneously assessed on these charges. You also maintain that the determination made in Public Document 97-137 (3/21/97) is not applicable to the Taxpayer because the Taxpayer is a retailer, and not a manufacturer, of unfinished furniture.
DETERMINATION
Virginia Code § 58.1-603 imposes the retail sales tax on the gross sales price of tangible personal property sold. Virginia Code § 58.1-602 defines "sales price" as the total amount for which tangible personal property or services are sold, including any services that are a part of the sale. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(A) explains that charges for services are generally exempt from the retail sales and use tax; however, services provided in connection with the sale of tangible personal property are taxable. Transactions that involve 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 the tangible personal property are separately stated. The "true object" test is used to determine the taxability of these transactions.
In Public Document (P.D.) 97-137 (3/21/97), the taxpayer manufactured and sold unfinished and finished furniture. The taxpayer was assessed tax because it did not charge and collect tax on separately stated finishing charges. The Department determined that the taxpayer was required to charge and collect the sales tax on the total charge for the finished product, including any separately stated finishing charges. The Department held that the customer's decision to purchase the taxpayer's product in a finished condition "does not constitute two separate and distinct transactions." Rather, the true object sought by the customer is a finished product in a single transaction. The Department further stated that the taxation of services in connection with the sale of tangible personal property has been in effect since the original enactment of the retail sales and use tax in 1966.
In this instance, the Taxpayer did not charge or collect sales tax on fees charged for furniture finishing services. These services were provided in connection with the sale of tangible personal property. Pursuant to 23 VAC 10-210-4040, the Taxpayer is required to charge and collect the sales tax on these fees. Public Document 97-137 is applicable in this case. The fact that the Taxpayer is a retailer and not a manufacturer does not affect the applicability of the tax to the sales at issue. Contrary to the Taxpayer's contention, this area of the Virginia retail sales and use tax law is not a new law and has been in place since the enactment of the sales and use tax statute nearly 40 years ago.
Based on this determination, the assessment is correct. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within thirty days of the date of the updated bill.
The Code of Virginia section and regulation 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 any questions about this response, 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/45675P
Rulings of the Tax Commissioner