Document Number
08-186
Tax Type
Retail Sales and Use Tax
Description
Service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services.
Topic
Exemptions
Tangible Personal Property
Date Issued
10-17-2008


October 17, 2008







Dear *****:

This is in response to your, letter requesting exemption from the Retail Sales and Use Tax for a group of recycling kits that are sold by your company, ***** ("Taxpayer.")

FACTS


The Taxpayer is currently marketing a series of recycling kits. Distributed in the form of cardboard boxes or plastic buckets, these containers are designed to package and ship spent fluorescent and HID lamps to EPA approved recycling centers that are currently located outside of Virginia. The kits vary in size and are specifically designed to package mercury containing lamps. Each recycling kit contains a 6 millimeter poly liner and tie, a prepaid return label, a universal waste label, instructions, and terms and conditions. Taxpayer currently markets these items to commercial and residential users exclusively for the purpose of packaging and shipping mercury containing lamps to recycling centers. The total sales price for these packs include all shipping and recycling fees. Prices range from $20- $1,000 depending upon the size of the container.

The Resource Conservation Recovery Act of 1976 (RCRA) regulates the generation, treatment, storage, transportation and handling of hazardous wastes and provides that spent fluorescent and high intensity discharge lamps are hazardous wastes, and prohibits the disposal of such wastes in a dumpster or compactor. 42 U.S.C. § 6901 et seq. Pursuant to this act, in 1995, the EPA adopted a set of regulations called the Universal Waste Rule that added hazardous waste lamps to the list of universal wastes, which must be either recycled at a licensed facility or treated at a permitted hazardous waste facility. These regulations are incorporated, by reference, into Virginia's Hazardous Wastes Management Regulations, 9 VAC 20­60-10 et seq.

You acknowledge that the containers are tangible products. However, you ask that the Virginia Department of Taxation ("TAX") treat the sale of these products as the sale of a non-taxable service, as the true object of the sale is the provision of a recycling service.

DETERMINATION


Va. Code § 58.1-603 imposes the retail sales and use tax on the sale or rental of tangible personal property. Va. Code § 58.1-602 defines tangible personal property as "personal property which may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses." The provision provides a list of items that are excluded from this definition, including stocks, bonds, notes, insurance or other obligations or securities.

As containers may be seen, weighed, measured, felt, and touched, they fall under the definition of tangible personal property. However, these containers are purchased by consumers for the exclusive purpose of packaging and shipping mercury containing lamps. Consumers package and seal their used lamps in these special containers, which are then shipped to designated recycling centers. The facts indicate that the costs of these containers include all shipping and recycling fees. Therefore, in addition to receiving tangible personal property, the consumer purchasing these recycling kits are purchasing the shipping and recycling services.

Title 23 of the Virginia Administrative Code, § 10-210-4040 provides that for the purposes of determining whether a particular transaction that involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. The regulation further provides:
    • [I]f the object of the transaction is to secure a service, and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable ...[i]n instances in which both the services rendered and the property transferred are critical elements of a transaction, the degree of customization, uniqueness or specific services provided in connection with the product shall be considered in determining its appropriate tax status.

In the instant case, the recycling kits are purchased for the sole purpose of providing a means by which mercury containing lamps can be recycled in accordance with EPA standards and regulations. The packages are not marketed for any other purpose. Furthermore, shipping fees and recycling costs are built into the price of the recycling kits. It is clear from these facts that the true object of the transaction is the provision of recycling services. As such, the sale of these recycling kits to the ultimate consumer is exempt from the tax.

This analysis is consistent with Public Document ("PD") 92-13. In that ruling, residents of a locality were required to purchase and use special trash bags in order to have their trash collected. The Tax Commissioner ruled that the true object of the transaction was the actual refuse service provided by the Taxpayer. As such, the sale of the bags was exempt from the tax.

Please note that subsection E of Virginia Administrative Code § 10-210-4040 provides that a service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services. If a supplier fails to collect the tax from a service provider, the provider shall remit use tax to TAX as provided in 23 VAC 10-210-6030. As such, the Taxpayer must pay sales tax to its supplier on the purchase of the recycling kits, labels, and all such other tangible personal property used in providing the exempt recycling service. If your company has been erroneously collecting tax on the sale of the recycling kits, you must refund this tax to your customers or remit it to TAX.

I hope the information provided has addressed your concerns. If you have additional questions, please contact ***** in the Office of Policy Development at *****.
                • Sincerely,


                • Janie E. Bowen
                  Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46