Tax Type
Retail Sales and Use Tax
Description
Fee charged for credit card service is not subject to tax
Topic
Exemptions
Taxable Transactions
Date Issued
02-04-2005
February 4, 2005
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you request a ruling on the application of the retail sales and use tax to the prepaid credit card services offered by ***** (the "Taxpayer").
FACTS
The Taxpayer offers prepaid credit card services to customers in conjunction with SnapPay. Customers who desire a credit card pay the balance they request for a MasterCard. In addition, the customer pays an activation fee of $9.95. The Taxpayer retains five dollars of the activation fee, and the remainder is remitted to SnapPay. Once the card is activated, the customer may use the card for personal transactions or contact MasterCard for an official credit card.
As the card is used and the balance decreases, the customer may "reload" the card for an electronic reload fee of $4.95. The Taxpayer retains two dollars of the reload fee, and the remainder is remitted to SnapPay. You request a ruling on the application of the retail sales and use tax to the transactions described above.
RULING
In this case, the initial transaction (obtaining a credit card and payment of the activation fee) involves the rendering of a service (credit card services) and the provision of tangible personal property (the credit card). Title 23 of the Virginia Administrative Code 10-210-4040 D provides that in determining whether such a transaction constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined.
Based on the facts presented, the "true object" in purchasing the credit card is the credit card service. The credit card serves as a medium for securing the credit card services and is incidental to the transaction. The amount prepaid by the purchaser entitles the purchaser to credit card services for that same amount. Therefore, the fee charged for the credit card service is not subject to the sales and use tax. Similarly, the reload fee is not subject to the sales and use tax.
This response is based on the facts provided as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.
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 website, located at www.policylibrary.tax.virginia.gov. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
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Kenneth W. Thorson
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AR/52955i
Rulings of the Tax Commissioner