06-115 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Environmental fees on repair invoices and untaxed purchases

Topic

Assessment

Collection of Delinquent Tax

Date Issued

10-16-2006

October 16, 2006

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 retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period March 2001 through December 2003. I note that the assessment has been paid in full. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer operates an automobile dealership. As a result of the Department's audit, use tax was assessed on untaxed purchases of license plate frames. In addition, the sales tax was assessed on environmental fees charged on customer repair invoices.

The Taxpayer disputes the tax in both instances. In regard to the license plate frames, the Taxpayer considers the frames as an added cost to each vehicle and contends no tax is due. Further, if the frames are deemed taxable, the Taxpayer asserts that the purchases are not recurring and should not be included in the sample computations. Regarding the environmental fees, the Taxpayer contends that the fee is a labor charge that is not connected to the sale of tangible personal property.

DETERMINATION

License Plate Frames

According to the auditor's comments, the Taxpayer's purchase of license plate frames was expensed to an advertising account and was not accounted for in the purchase price of the vehicles sold. As such, the purchases are not exempt purchases for resale. These purchases are deemed advertising materials for the Taxpayer's own use and consumption and are subject to tax. The tax treatment of the license plate frames in this instance is consistent with the tax upheld on the purchase of key rings by a chain of automobile dealerships addressed in a prior ruling of the Tax Commissioner in Public Document (P.D.) 01-158 (10/19/01). In that document, the purchase of the key rings was also treated as an expense by the taxpayer and their cost was not included in the sales price of the vehicles. In accordance with prior ruling, I find no basis for removal of the purchases for the license plate frames from the assessment.

The purchase of the license plate frames is included in the audit sample computations. The Taxpayer contends that the purchase of the frames was a first time purchase for a one-year supply and was not representative of recurring purchases. The Taxpayer seeks to remove the purchases from the sample.

Public Documents 99-66 (4/15/99) and 04-204 (11/23/04) are on point in this instance. These documents explain that an item cannot be removed from an audit sample unless the transaction is isolated in nature and not a normal part of the taxpayer's operation. In this case, the Taxpayer made five purchases of license plate frames throughout the sample year (January, March, May, July and August). These months might represent the Taxpayer's first time purchasing the frames; however, the purchases were recurring in nature and were not isolated. In accordance with the cited public documents, no adjustment to the sample is warranted.

Environmental Fees

The environmental fee is a charge for a service in connection with the sale of tangible personal property. The Taxpayer's computation of the fee based on labor charges does not alter the taxable status of the fee. The fees are charged because an element of the transaction includes a sale of tangible personal property and a resulting disposal of used parts, material or fluids. The application of the tax to such charges is set out in Tax Bulletin 94-10 (P.D. 94-363 (12/01/94)) and P.D. 97-73 (2/18/97). Also P.D. 01-158, cited earlier, addresses environmental charges by a chain of automobile dealerships.

Additionally, the Taxpayer contends that the fees offset the costs associated with the purchase of the shop supplies that are subjected to the tax, and that the taxation of the fees would be double taxation. I disagree. The purchase of the shop supplies by the Taxpayer is a separate and distinct transaction from the Taxpayer's assessment of a fee to its customer for the disposal of used or worn parts, materials or fluids. See P.D. 01-158. Accordingly, the tax assessed on the fees is proper.

Based on the foregoing, the audit liability was properly assessed. I find no basis for a refund of any portion of the previously paid assessment.

The public documents cited, as well as other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions regarding this determination, please contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at ***** or at *****@tax.virginia.gov.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/51360Q

Rulings of the Tax Commissioner