Tax Type
Retail Sales and Use Tax
Description
Assessment for use tax on the purchase of the cutoff units by car dealership.
Topic
Property Subject to Tax
Taxable Transactions
Date Issued
03-14-2011
March 14, 2011
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This reply is in response to your letter in which you request correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period April 2003 to October 2008. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a car dealership that sells used cars. The Taxpayer purchases cutoff units which are installed in cars purchased by customers with less than acceptable credit. An audit by the Department resulted in an assessment for use tax on the purchase of the cutoff units. The Taxpayer protests the use tax and contends that these units are resold to the customer and taxable to such customers.
DETERMINATION
The cut-off units are installed in cars that are financed by the Taxpayer's sister corporation. Although the companies are separate legal entities, they are owned by the same parties. During the audit period, the cutoff units were purchased in bulk and held in an intercompany account by the Taxpayer. The intercompany account showed the transactions between the Taxpayer and its sister corporation. Throughout the month, the cutoff units were installed in cars financed through the sister corporation.
Upon installation of the cutoff unit, each customer signed a contract that included the following language: "I understand that the Device is the property of the Dealership [the Taxpayer] or its designated assignee. I further understand that if I tamper with, alter, disconnect or remove the Device, I will be considered in default under this agreement and my Contract." The contract also instructed that the customer provide the vehicle for periodic maintenance and repairs to the unit with all costs incurred by the dealership. The contract allowed the customer to purchase the unit when the loan had been satisfied. The contract also named the Taxpayer's sister corporation as the assignee of all rights to the unit.
At the end of each month, the cutoff units were transferred in bulk by the Taxpayer to the Taxpayer's sister corporation. Payment to the Taxpayer from the sister corporation for the cutoff units was received in the form of a reduction of the Taxpayer's accounts payable to the sister corporation.
Based on the contractual language cited above, although the cutoff unit is installed in the purchased vehicle, at no time is it considered to be owned by the customer. Additionally, because the unit is solely programmable by the Taxpayer and the customer is able to purchase the unit only at the end of the finance contract, it is evident that title to the unit rests with the Taxpayer, or its assignee, throughout the finance period. It is clear that ownership of the cutoff units remains with the Taxpayer until transferred to its sister corporation.
Virginia Code § 58.1-604 imposes the use tax on "the use or consumption of tangible personal property in this Commonwealth . . . ." Virginia Code § 58.1-602 defines the term "use" to mean "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sales at retail of that property in the regular course of business."
When the Taxpayer installs the unit into the customer's car to use as a deterrent to delinquent loan payments, it exercises a taxable use over the unit and becomes subject to the tax. The Taxpayer has not provided any convincing evidence to support its contention that the unit is sold with the vehicle to its customers. Based on the facts in this case and the cited authorities, the auditor properly assessed the tax to the Taxpayer regarding the cutoff units and the assessment is upheld.
The Taxpayer will receive an updated bill with interest accrued to date. The bill should be paid within 30 days from the bill date to avoid additional interest charges. The Taxpayer should remit its payment to Virginia Department of Taxation, 600 East Main Street, 23rd Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning the payment of the assessment, you may call ***** at *****.
The Code of Virginia sections 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 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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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-3627762708.M
Rulings of the Tax Commissioner