January 11, 2022
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”) requesting a ruling regarding the application of the Virginia retail sales and use tax to the total loss transaction outlined in the equipment lease agreement provided to the Department. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is an equipment leasing company in the business of leasing various assets including vehicles and railcars. The Taxpayer enters into lease agreements with customers for a set amount of time at the end of which the customer either returns the assets or purchases the assets at fair market value. In the lease agreement, the Taxpayer includes a section regarding total loss of equipment and the necessary steps a customer must take should the asset leased be considered a total loss due to operator error or misconduct. The Taxpayer questions whether the tax applies to proceeds received from the customer with regard to this transaction.
RULING
Virginia Code § 58.1-603 2 imposes the sales tax on “the gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business, or part of an established business, or the same is incidental or germane to such business.” Virginia Code § 58.1-602 defines gross proceeds as “the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services, computed with the same deductions, where applicable, as for sales price as defined in this section over the term of the lease, rental, service, or use, but not less frequently than monthly.” The same section explains that sales price includes “any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.” [Emphasis added.]
Pursuant to these authorities, the transaction that occurs as a result of total loss as defined in the contractual language of the Taxpayer’s lease agreement would be taxable in its entirety.
With regard to the sale and lease of motor vehicles, pursuant to Virginia Code § 58.1-609.1 2 the retail sales and use tax “shall not apply to “motor vehicles, trailers, semitrailers, mobile homes and travel trailers.” The Virginia motor vehicle sales and use tax, however, may apply and is administered by the Virginia Department of Motor Vehicles (DMV). The Taxpayer should contact the DMV for guidance regarding the application of the motor vehicle sales and use tax to the total loss transaction.
I hope this responds to your inquiry. This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections 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 response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1877L