Tax Type
Retail Sales and Use Tax
Description
Audit revised to remove tax on marked-up charges for nontransferable shop supplies
Topic
Appropriateness of Audit Methodology
Assessment
Taxpayers' Remedies
Date Issued
06-18-2008
June 18, 2008
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period September 2003 through August 2006. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is engaged in the sale and repair of heavy trucks. For repair work, the Taxpayer pays the tax on purchases of shop supplies used in the performance of its repair services. The Taxpayer bills its customer a lump sum charge to recover its costs of the shop supplies. The lump sum charge for the shop supplies is based on a percentage of the labor charges billed on the customer's repair invoice. At issue is the tax assessed on revenues generated from the shop supply charges that exceed the Taxpayer's shop supplies cost.
The Taxpayer contests the assessment and claims that: (i) the auditor failed to take into consideration that the Taxpayer paid the tax on the purchase of the contested shop supplies, (ii) the shop supply fee is not in connection with the sale of tangible personal property, and (iii) repair services are exempt from the sales tax under Va. Code § 58.1-609.5. The Taxpayer cites several public documents in support of its position that miscellaneous shop supply charges are not subject to the sales tax. The Taxpayer requests that the Department allow the Taxpayer the opportunity to provide internal records to separate the contested shop supply charges from other charges.
DETERMINATION
Virginia Code § 58.1-602 defines a "sale" as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property . . . ."
According to the invoices provided, the miscellaneous shop supply charge is listed separately on the customer repair invoice and represents nontransferable shop supplies used in performing the Taxpayer's repair work. Based on the above, a sale as defined in Va. Code § 58.1-602 has not taken place because there is no transfer of tangible personal property from the Taxpayer and the customer on the shop supplies.
Public Documents 01-158 (10/19/01) and 87-275 (12/23/87) are on point in this instance. These documents explain that a dealer is the user and consumer of shop supplies used in the performance of repair services for customers. As such, a dealer is required to pay the tax on all purchases of shop supplies at the time of purchase, but will not be required to collect the sales tax on shop supply charges made to customers. Based on these rulings by the Tax Commissioner, the tax assessed on marked-up charges on nontransferable shop supplies in this case are not subject to the tax. The fact that the Taxpayer may mark up the cost of the shop supplies does not change the tax status.
CONCLUSION
According to the determination set forth above, the audit will be revised to remove the tax assessed on marked-up charges for nontransferable shop supplies. As a result, the Department will abate contested bill *****.
The Code of Virginia sections 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 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/1-1084231373.T
Rulings of the Tax Commissioner