April 5, 2022
Re: Request for Ruling: Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), requesting a ruling on the application of Virginia’s retail sales and use tax. I apologize for the delay in responding to your request.
FACTS
The Taxpayer, a Virginia business entity, provides temporary office space, shared workspace, meeting rooms, business address and mailbox services, and live phone answering services. The Taxpayer’s facilities are fully furnished, and its associated services can be reserved on an annual, monthly, daily, or hourly basis. The Taxpayer requests a ruling on the applicability of Virginia’s retail sales and use to tax to its services.
RULING
Virginia Code § 58.1-603 imposes the retail sales tax on the proceeds from the sale, rental, or lease of tangible personal property in Virginia, accommodations furnished to transients, and on any services expressly stated as taxable by Chapter 6 of Title 58.1 of the Code of Virginia. Similarly, Virginia Code § 58.1-604 imposes a use tax on items of tangible personal property used, consumed, distributed, or stored in Virginia for which no retail sales tax has been paid.
The Taxpayer offers its customers a licensee interest in and use of office facilities. In P.D. 89-249 (9/19/1989), the Department determined that “the rental of complete office space is not subject to the tax as this is a rental of real estate.” Although the Taxpayer’s “Membership Service Agreement” indicates that it creates a revocable license rather than a lease or rental, the relationship is essentially similar to a lease or rental of real estate for Virginia sales and use tax purposes.
Virginia Code § 58.1-609.5 specifically exempts the application of Virginia’s retail sales and use to tax to certain services transactions including,
Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate chares are made;… and services not involving an exchange of tangible personal property which provide access to the Internet and any other related electronic communication service, including software, data, content and other information services delivered electronically via the Internet.
Transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt of the full amount charged based upon the “true object” test, as described in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040. While some of the Taxpayer’s services may involve the provision of tangible personal property, such as a mailbox, telephone, printer, etc., in the Department’s opinion, the true object of all these transactions described would be the provision of exempt services.
As a provider of services, the Taxpayer would be required to pay the Virginia retail sales tax on the purchase of all furnishings, equipment and other tangible personal property used to conduct its trade or business in Virginia. If the proper Virginia sales tax is not charged at the time of purchase, then such items would be subject to the use tax and should be reported on a Business Consumer Use Tax Return (ST-7).
This ruling is based on the facts presented, as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulation, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's website. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****, or via email at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1739.C