Tax Type
Retail Sales and Use Tax
Description
Gross proceeds, Taxability of finance charges
Topic
Computation of Tax
Property Subject to Tax
Date Issued
12-14-1982
December 14, 1982
Re: Request for Ruling/Sales and Use Tax
Dear********************
This will reply to your letter of November 22, 1982, a request for a ruling on the applicability of sales and use tax to personal property tax reimbursed *************** lessees in accordance with t heir lease agreement with the bank.
FACTS
************** (hereinafter **********), in accordance with lease agreements, remits personal property tax on various rental properties. However, such lease agreements provide that the lessee shall reimburse for personal property tax remitted by the bank. While ********** has remitted sales tax on rents received from leased property, the bank has failed to remit tax on personal property; tax reimbursed by lessees, claiming that such reimbursements are not a part of the "sales price' of a lease, but instead constitute an "alternative means of financing."
RULING
§ 58-441.3(b) of the Code of Virginia defines gross proceeds as the charges made or voluntary contributions received for the lease rental of tangible personal property or for furnishing services, computed h the same deductions as for Virginia Code § 58-44 1.3(b) over the term of the lease. Virginia Code § 58-441.3(b) in turn defines sales price as the total amount for which tangible personal property or services are sold, including any services that are a part of the sale with certain deductions. The deductions noted in this subparagraph do not include any for tax paid by the lessor and reimbursed by the lessee.
In Lutherville Supply and Equipment Company v. Commonwealth of Virginia, the Circuit Court of Fairfax County found that "an incremental addition to the purchase price...is not excluded from the imposition of Virginia Sales Tax." The court specifically held that a "finance charge" added at the time of sale to the value of the equipment leased with an option to purchase was indeed an addition to the purchase price and as such was taxable.
The remittance of personal property tax by ***********constitutes a service that is provided for in lease agreements. Even though the lessee is the "party exclusively in possession of the property" and is required to reimburse the bank for tax paid, such a reimbursement is an addition to the "sales price" of the lease and as such is subject to the retail sales and use tax.
If you have any further questions or if we may be of further assistance, Please do not hesitate to call us.
Sincerely.,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner