Tax Type
Retail Sales and Use Tax
Description
Automobile dealerships to pay tax on shop supplies at the time of purchased
Topic
Property Subject to Tax
Date Issued
03-27-2007
March 27, 2007
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 September 2002 through August 2005. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates an automobile dealership and provides automobile repair services. The Department's audit disclosed that the Taxpayer listed an environmental disposal/shop supply charge on customer repair invoices. Because the nontaxable shop supply charge was not separate from the environmental disposal fee on customer repair invoices, the auditor assessed tax on the combined charge. The Taxpayer seeks an abatement of the assessed tax and interest on the combined charge, contending that the combined charge actually represents shop supply charges only.
DETERMINATION
The Department has previously ruled that shop supplies are used and consumed by automobile dealerships in the performance of repair services for customers. As such, automobile dealerships are required to pay the tax on shop supplies at the time they are purchased. Such charges are not taxable to the customer. See Public Document (P.D.) 87-275 (12/23/87).
The Taxpayer states that, prior to the current audit, a shop supply charge was listed separately on its customer repair invoices. During the current audit period, the Taxpayer renamed the shop supply charge to an "environmental disposal/supply charge" for purposes of customer relations. The Taxpayer contends that the renamed charge, however, still represents shop supply charges only.
Virginia Tax Bulletin 94-10 (12/1/94) explains the Department's policy with respect to environmental charges and characterizes such charges as services in connection with the sale of tangible personal property. When a customer invoice includes a separately stated environmental charge and a shop supply charge, the environmental charge is subject to the tax as a service in connection with the sale of tangible personal property and the shop supply charge is not taxable in accordance with P. D. 87-275
The auditor has verified that the environmental disposal/shop supply charge on customer invoices actually represented exempt shop supply charges and did not include an environmental disposal fee. Accordingly, the charge is not subject to tax. For the future, the Taxpayer will be expected to separately state and identify nontaxable shop supply charges on its customer repair invoices. Please note that if the Taxpayer combines any taxable charge with an exempt charge on its customer repair invoices, the tax will apply to the total combined amount charged.
Based on the foregoing, the balance of the Department's assessment representing the contested issue has been abated. The tax bulletin and public documents cited 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 matter, please contact ***** of the Office of Policy and Administration, Appeals and Rulings at *****.
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- Sincerely,
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Janie E. Bowen
Tax Commissioner
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AR/1-527606101Q
Rulings of the Tax Commissioner