Tax Type
Retail Sales and Use Tax
Description
The Taxpayer is in the business of leasing office equipment
Topic
Collection of Tax
Credits
Exemptions
Tangible Personal Property
Date Issued
08-29-2008
August 29, 2008
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** ("Taxpayer"), in which you seek correction of the retail sales and use tax assessment issued for the period April 2001 through June 2004. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the business of leasing office equipment. The Taxpayer also provides financing to its customers that is not related to the leasing of equipment. The Taxpayer raises several issues that will be addressed separately below.
DETERMINATION
Issue 1 - Financing Transactions
The Taxpayer uses its Term Lease Master Agreement (the "Agreement") to lease property to customers and to provide financing to its customers. The Agreement may be used for a lease transaction, a financing transaction, or a combination of lease and financing transactions. The Taxpayer contends that when the Agreement includes both lease and financing transactions, the Taxpayer is liable only for the tax associated with the lease transaction.
In the audit, the Taxpayer was held liable for the tax in instances where the Agreement included both lease and financing transactions. The Taxpayer contends that Va. Code § 58.1-603 prohibits tax from being assessed on the financing transactions in these situations. The Taxpayer asserts that the financing transactions constitute nontaxable loans of money rather than sales or leases of tangible personal property. The Taxpayer further contends that the financing transactions are negotiated separately from the leasing transactions and are not related to the leasing transactions. The Taxpayer treats the financing transactions as loans for financial accounting purposes, federal income tax purposes, state personal properly tax reporting, SEC reporting and for various other legal purposes.
Virginia Code § 58.1-603 2 imposes the retail sales and use 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 sale is incidental or germane to such business." Virginia Code § 58.1-602 defines gross proceeds, in pertinent part, as "the charges made or voluntary contributions received for the lease or rental of tangible personal property . . . over the term of the lease, rental, service, or use, but not less frequently than monthly." Title 23 of the Virginia Administrative Code (VAC) 10-210-840 B provides that "gross proceeds includes any finance or interest charges, insurance charges, charges for property tax on property being leased, and other similar charges."
Based on the specific facts of this case provided in the appeal and in a phone conference with a member of my staff, the financing transaction included in the Agreement with a lease transaction constitutes a loan between the Taxpayer and its customer and is not subject to the tax, even though embodied in the same document. The lease transaction and the finance transaction are two separate transactions that are not related to one another. The proceeds received as a result of the financing transaction are not considered gross proceeds because they are not related to or associated with the leasing of tangible personal property as contemplated in Va. Code §§ 58.1-603 and 58.1-602 and Title 23 VAC 10-210-840.
In the audit, all transactions that were shown to be for loans only were removed from the audit. Based on this determination, transactions including both lease and financing transactions, that were assessed tax on the financing transactions, will be removed from the audit.
Issue 2 - Tax Exempt Entities
This issue will not be addressed because Issue 1 was decided in the Taxpayer's favor.
Issue 3 - Credit for Sales Tax Paid on Purchases of Re-Leased Property
The Taxpayer contends that it was not given a credit in the audit for tax paid on tangible personal property that was purchased for lease. In Public Document (P.D.) 97-354 (8/29/97), the taxpayer sought a credit in the audit for tax it incorrectly paid to its vendors for the purchase of tangible personal property for resale. The Tax Commissioner ruled that the Department generally does not credit taxes which had been incorrectly paid to vendors. To do so might jeopardize the proper allocation of the local portion of the tax and would also disregard any dealer discount claimed by the vendor originally selling the materials. Further, because taxpayers can obtain refunds from vendors for erroneously paid taxes, allowing a credit in an audit for such taxes would be contrary to sound accounting practices. See also, P.D. 96-358 (12/6/96).
The aforementioned public documents illustrate the Department's longstanding policy with respect to refunds for incorrectly paid or collected tax. In accordance with this policy, the Taxpayer's request to receive a credit in the audit for erroneously paid tax is denied. The Taxpayer must contact its vendor to secure a refund of the erroneously paid tax.
Issue 4 - Credit for Interest
The Taxpayer contends that it was not given credit in the audit for interest on overpayments of tax on purchases of tangible personal property that were subsequently leased. The Taxpayer maintains that it is due a credit of ***** in interest.
According to the audit report, the Taxpayer was given a credit of ***** in interest. The tax, penalty and interest detailed calculation shows the interest credit that was allowed. Form ST-48 reflects no taxable measure for the "B$ Leases - Interest Only Calculations" category because no tax was assessed with respect to this category. The interest credit would not be reflected in the Analysis of Measure segment of Form ST-48 because it is not a taxable measure. The credit is properly reflected on the aforementioned calculations page. Accordingly, the Taxpayer has received the requested credit in the audit and is not due any additional credit.
Issue 5 - Purchase Sales Tax Recover
The Taxpayer contends that is was incorrectly assessed tax on a reimbursement of tax paid on behalf of its customer. The Taxpayer asserts that it paid the tax for its customer and was later reimbursed for such payment.
The documentation provided by the Taxpayer does not warrant a revision to the audit. The documentation is an invoice that illustrates a transaction between the Taxpayer and its customer. It does not demonstrate the Taxpayer's contention that it paid the sales tax on behalf of its customer, nor does it support the Taxpayer's contention that this transaction should not be included in the audit.
CONCLUSION
Based on this determination, the audit will be returned to the audit staff to make the aforementioned adjustments to the audit. An updated bill, with interest accrued to date, will be mailed to the Taxpayer once the audit adjustments are complete. No further interest will accrue provided the outstanding balance is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections, regulations and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1432980860.P
Rulings of the Tax Commissioner