September 21, 2017
Re: § 58.1-1821 Application: Retail Sales and Use Tax
This is in response to your letter in which you request correction of the retail sales and use tax assessments issued to your client, ***** (the “Taxpayer”) for the period January 2014 through August 2016. I apologize for the delay in responding to your appeal.
The Taxpayer is a taxidermist that prepares deceased animals brought in by its customers for the preservation of such animals into their natural state. The auditor concluded that the processing of deceased animals is taxable fabrication based on the assumption that the true object is to secure the mounted animal in its altered form. Relying on this reasoning, the auditor assessed the sales tax on the Taxpayer's taxidermy sales. In addition, the auditor assessed the use tax on untaxed purchases made by the Taxpayer. The Taxpayer contests the assessed sales tax and claims that it is in the business of providing nontaxable services when providing taxidermy.
Taxidermy - Fabrication or Nontaxable Service
Virginia Code § 58.1-602 defines the term “sale” to include “the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication, . . . .” Title 23 of the Virginia Administrative Code (VAC) 10-210-560 A defines fabrication as “[a]n operation which changes the form or state of tangible personal property . . . .” Section B of the same regulation interprets the cited statute and states in part:
The tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work.
The Department has traditionally held that tangible personal property that is cut, sawed, shaped, bent, threaded, welded, bored, drilled, punched, machined, sheared, or otherwise subjected to an operation which changes the property's form or state is considered to have been fabricated. These operations are deemed to be a taxable fabrication services in accordance with the statute and regulation cited, and the charge for such services is subject to the sales tax.
Virginia Code § 58.1-609.5 1 provides an exemption from the retail sales and use tax for “professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made . . . .”
Title 23 VAC 10-210-4040 D sets forth the “true object” test to determine whether a particular transaction involves the taxable sale of tangible personal property or the provision of an exempt service. This regulation states:
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.
Taxidermy is the art of preparing, stuffing and mounting the skins of animals for display or a source of study or for preservation. When a customer brings a recently killed or deceased animal to the Taxpayer and pays to have the animal preserved, the customer is seeking the preparation, stuffing and mounting of the animal skins in a manner that they appear to be living. The true object of the transaction is the Taxpayer's expertise in this art form. Therefore, the Taxpayer is providing a nontaxable service. The tangible personal property, i.e., mounting board, glass eyes, and similar items transferred to the customer are inconsequential elements for which no separate charges are made. As a service provider, the Taxpayer must pay use tax on the purchase of supplies that are consumed in preparing the animals. See Title 23 VAC 10-210-4040 E. Accordingly, the audit will be adjusted to remove the tax assessed on the taxidermy sales.
In this instance, the auditor assessed the use tax on purchases of tangible personal property for which the Taxpayer provided no proof that the sales tax was paid or accrued and remitted to the Department.
Virginia Code § 58.1-205 states that “any assessment of a tax by the Department shall be deemed prima facie correct.” The taxpayer has the burden of proving that the tax assessed is incorrect. In this instance, the Taxpayer provides no documentation with its appeal to support its contention that the assessment of the use tax is incorrect. While the Taxpayer has met the burden of proof with regard to the assessed sales tax, it has not done so with regard to the assessed use tax. Therefore, I find no basis to adjust the audit regarding this issue.
Based upon this determination, the audit will be adjusted to remove the tax assessed on the taxidermy sales. The tax assessed on purchases is correct as issued. An updated bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill dates to avoid additional interest charges. The Taxpayer should remit its payment to: Virginia Department of Taxation, 600 East Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of these assessments, you may contact ***** at *****.
The Code of Virginia sections and regulations cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Craig M. Burns