Document Number
10-167
Tax Type
Retail Sales and Use Tax
Description
Tax on the purchases of tangible personal property used for birthday party packages
Topic
Exemptions
Nonprofits
Tangible Personal Property
Date Issued
08-10-2010

August 10, 2010




Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you seek correction of the retail sales and use tax assessment issued for the period March 2006 through February 2009. I apologize for the delay in responding to your appeal.

FACTS


The Taxpayer operates as a nonprofit children's museum. The Taxpayer contests the assessment of tax on charges related to its birthday party program. According to a pamphlet provided by the Taxpayer, which describes the birthday packages available during the audit period, the Taxpayer offered two types of parties - the ***** and the *****.

The ***** provided the Taxpayer's customers with admission for 12 children and one accompanying adult, exclusive use of one of its party rooms for 90 minutes that included decorated tables with coverings, bright balloons and confetti, postcard invitations to send to guests, and a party facilitator. Customers had the option of separately purchasing a craft activity, t-shirt, themed decorations or goodie bags. Food and beverages were not provided by the Taxpayer.

The ***** provided the Taxpayer's customers with admission for 15 children and one accompanying adult, exclusive use of one of its party rooms for 90 minutes that included chairs and decorated tables with coverings, bright balloons, confetti, color coordinated napkins, plates, cups and forks, postcard invitations to send to guests, a party facilitator, supplies for a craft project, a goodie bag for each child, and a t-shirt for the birthday child. Customers had the option of separately purchasing a themed program with coordinating decorations. Food and beverages were not provided by the Taxpayer.

DETERMINATION


Virginia Code § 58.1-609.5 1 provides the retail sales and use tax does not apply to "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made . . . ."

Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 A states:
    • Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection the sales of tangible personal property are taxable. Transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated. As explained in subsection D of this section, the "true object" test is used to determine the taxability of these transactions.

Title 23 VAC 10-210-4040 D states:
    • In order to determine whether a particular transaction which 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. If 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.

The birthday packages at issue offer both service and tangible personal property components. In order to determine how the retail sales and use tax should be applied to the sale of the birthday packages, the true object test must be applied.

Based on the information provided, the Taxpayer's customers choose to have a birthday party at the museum so that the children in attendance can experience the exhibits offered by the museum. The Taxpayer's birthday party program is not a rental opportunity for the general public or its members. It is a facilitated program with an introductory orientation of the museum and a hands-on activity/craft program for participating children.

The true object of the transactions at issue is the birthday party experience at the museum. The tangible personal property provided in conjunction with the birthday party services are elements of the sale but are not the true object of the birthday party sale transaction. Accordingly, the Taxpayer is not liable for the retail sales tax on the sales of the birthday party packages. The Taxpayer is not liable for the tax on the purchases of tangible personal property used for the birthday party packages because the Taxpayer operates as a nonprofit museum, and the Taxpayer holds a nonprofit exemption letter from the Department.1

The charges associated with sales of the birthday party programs will be removed from the audit assessment. Because the bill associated with this assessment has been paid in full, the Taxpayer will receive a refund with refund interest accrued to date.

The Code of Virginia section and regulation 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 *****.
                • Sincerely,


                • Linda Foster
                  Deputy Tax Commissioner



AR/1-3567763557.P

1) The Taxpayer was issued a nonprofit exemption letter by the Department on September 25, 2009.


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46