Tax Type
Retail Sales and Use Tax
Description
Payments received through leasing agreements.
Topic
Allocation and Apportionment
Computation of Tax
Taxability of Persons and Transactions
Date Issued
08-18-2004
August 18, 2004
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 June 1995 through May 2001. I apologize for the delay in the Department's response.
FACTS
The Taxpayer is a professional corporation made up of individual dentists. The Taxpayer's principals (i.e., the dentists), receive payments from the Taxpayer through leasing agreements. The payments compensate the dentists for equipment they owned prior to incorporating. You indicate that the lease agreement was created as a reimbursement mechanism because the individual dentists did not want to contribute equipment to the Taxpayer for fear of not being able to retrieve the equipment should the practice be dissolved. The Taxpayer contends that the payments to the dentists are merely reimbursements to compensate the dentists for what they were paying on the equipment.
DETERMINATION
Virginia Code § 58.1-603 imposes the sales tax on every person who sells or leases or rents tangible personal property in the Commonwealth. Virginia Code § 58.1-602 defines the term "sale" to mean "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property ...." This same section also provides that the term "lease or rental" "means 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."
The Department's long-standing policy is that the underlying document governs the treatment of the transaction for sales and use tax purposes. In the Taxpayer's case, the agreement clearly reflects that it is a lease agreement. In the lease agreement you provided, the dentist and the Taxpayer are referred to as the Lessor and Lessee, respectively, and the agreement clearly shows that the "equipment is... the sole and exclusive property of the Lessor." As the documents in question represent the lease of tangible personal property for a consideration, I continue to find insufficient cause for any correction of the assessment. Additionally, I refer to Public Documents 93-169 (7/29/93), and 86-179 (8/26/86), which further support the Department's position.
This is the Department's final determination regarding this issue. Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided payment is received within 30 days of the date the bill is issued.
If you have any other questions, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, via e-mail at *****@tax.state.va.us or at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/41660Q
Rulings of the Tax Commissioner