Tax Type
Retail Sales and Use Tax
Description
Gross proceeds from the leased equipment; Registration.
Topic
Collection of Tax
Date Issued
04-26-2005
April 26, 2005
Re: Request for Ruling: Retail Sales and Use Tax
Dear *************:
This will reply to your letter in which request a ruling on behalf of an unidentified client (the "Taxpayer"). I apologize for the delay in the Department's response.
FACTS
The Taxpayer is a parent corporation that manufactures, sells and leases equipment and related supplies. The Taxpayer also provides maintenance services on the equipment sold and leased to customers. The Taxpayer conducts all leasing activities through a wholly-owned single member subsidiary. The Taxpayer sells equipment to the subsidiary for lease to customers under a sale and servicing agreement. The Taxpayer's responsibilities under the servicing agreement include management, administration, servicing, enforcement, and payment collection regarding the leased equipment. In addition, the Taxpayer sells or leases any equipment repossessed in connection with defaulted leases.
The Taxpayer invoices the customer a bundled amount composed of charges for the lease of the equipment, furnished supplies, maintenance services and applicable sales tax. The Taxpayer will collect and forward the lease payments to the subsidiary. The Taxpayer is registered in Virginia for the collection and remittance of sales tax and requests permission to collect and remit all sales tax on behalf of the subsidiary regarding the lease transactions. The Taxpayer describes two proposed filing methods for filing the tax collected:
- · The Taxpayer would collect and remit the sales tax under the Taxpayer's sales and use tax registration as an agent filer for the subsidiary. Under this method, the subsidiary would not be required to register in Virginia for the collection of the sales and use tax on the lease of equipment to customers.
· Alternatively, the Taxpayer would collect and remit all sales tax on behalf of the subsidiary. The subsidiary would register with Virginia and file zero returns. If audited by the Department, the Taxpayer and subsidiary would have the right to offset any taxes owed and or paid between the companies.
RULING
Dealer defined
The tax imposed by Va. Code § 58.1-603 on the lease of tangible personal property is to be collected by the "dealer" and remitted to the Department. The term "dealer" is defined in Va. Code § 58.1-612 B 5 to include every person who leases or rents tangible personal property for a consideration. Pursuant to Va. Code § 58.1-613 A, every dealer is required to register for the collection and remittance of the sales tax to the Department.
The assignment and lease documents provide that the Taxpayer and its subsidiary are parties to the lease agreement with the customer. Therefore, the Taxpayer and its subsidiary are dealers in accordance with § 58.1-612 regarding the lease of the equipment. Because the Taxpayer is currently registered for the collection of the retail sales and use tax, the Taxpayer may collect the tax on the gross proceeds from the leased equipment and submit the tax under its current registration. As such, the subsidiary would not be required to register with the Department for the collection of the sales tax on such leases. The subsidiary may purchase equipment from the Taxpayer exempt of the tax for subsequent lease to customers.
Maintenance fee/bundled charges
Virginia Code § 58.1-603 2 imposes the sales tax on the "gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business, or part of an established business, or the same is incidental or germane to such business." The term "gross proceeds" is defined in Va. Code § 58.1-602 as the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services, computed with the same deductions, where applicable, as for sales price as defined in this section over the term of the lease, rental, service, or use, but not less frequently than monthly.
The Taxpayer bundles as a single charge the lease payment, maintenance fee and supply charges. Maintenance contracts that provide for both the repair or replacement of parts and repair labor are generally subject to the 5% retail sales and use tax based on one-half of the total charge. See Va. Code § 58.1-609.5 9. In this case, because the maintenance fee is not identified as such on the invoice and is bundled in a single charge with the equipment lease, the entire charge would be fully taxable as gross proceeds derived from the lease in accordance with § 58.1-603 2 and the definition of gross proceeds set out above. The Taxpayer may purchase repair and replacement parts exempt of the tax for resale when such parts are provided under the terms of its maintenance contracts.
This ruling is based on the facts presented to the Department as summarized above. Any change in these 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 web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this response, please 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
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- Tax Commissioner
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- Kenneth W. Thorson
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AR/51467T
COMMONWEALTH of VIRGINIA
Department of Taxation
Department of Taxation
TO WHOM IT MAY CONCERN:
Under the authority of §§ 58.1-1 and 58.1-110 of the Code of Virginia, I hereby delegate to Gerald Gwaltney, Deputy Tax Commissioner, the authority to sign for me, in my absence, any and all documents, including, but not limited to, affidavits, warrants, rulings, appeals, offers in compromise and sales tax revocations.
This authority shall not extend to matters or documents related to my service on any statutorily created board or commission, including, but not limited to, the Compensation Board and Treasury Board.
This authority shall become effective January 10, 2003, and shall remain in effect until revoked.
Done at Richmond, Virginia, this 13th day of January 2003.
Kenneth W. Thorson
Tax Commissioner
Acknowledgement: Gerald H. Gwaltney Date:
Done this 13th day of January 2003 in the City of Richmond, State of Virginia. My Commission expires 9-30-2003.
Notary Public Notary Seal
Rulings of the Tax Commissioner