82-63 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Installation charges

Topic

Basis of Tax

Corporate Distributions and Adjustments

Date Issued

05-13-1982

May 13, 1982

Re: §58-1118 Application/Sales and Use Tax
Certificate of Registration Number

Dear ********************

This will reply to your letter of August 14, 1980 and subsequent correspondence of February 2 and April 1, 1982 petitioning for relief of sales and use tax assessed against your client, ************* (now known as ***** ) as the result of an audit.

Facts

***********sells and installs interconnect telephone systems which consist of the telephone, switching equipment, and other property necessary to provide a functioning telephone system. ******** is not regulated as a public service corporation.

********** bills its customers for equipment and installation; the installation charge may or may not be separately stated on the invoice to the customer. Where installation charges were not separately stated, **********estimated that approximately two-thirds of the total charge represented equipment and one-third represented installation charges. Sales tax was billed and remitted based upon two-thirds of the total charge to the customer.

Determination

§58-441.3(b) of the Code of Virginia excludes from the definition of "sales price" for computing the base upon which the sales tax is applicable,

- the amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold (Emphasis Added).

This section has been interpreted consistently as requiring that installation, application, remodeling, or repairing charges be separately stated to the customer in order to qualify for exclusion from sales price. Such construction is set forth in the Virginia Retail Sales and Use Tax Regulations in §1-27(g) with respect to retailers selling and installing tangible personal property and in §1-90(a) with respect to repair labor. This position is based on the inclusion of the term "separately charged" in the controlling statute. This term must be given considerable weight, and were any construction other -than that currently placed upon the statute used, the words "separately charged" would be superfluous.

Since your client has demonstrated a reasonable method of computing the tax on tangible personal property only; the audit deficiency will be adjusted to remove transactions whereby the tax was computed on 66 percent of the invoice price and to remove the penalty. However, ********* should begin immediately segregating charges for installation from charges for tangible personal property on the invoice to correct their erroneous method of tax collection.

Additionally, an examination of the audit reveals numerous transactions on which no tax was charged. These transactions have not been removed from the audit.

On the basis of this determination letter the audit will be adjusted and a revised bill will be sent to you shortly at which time payment should be made.

Sincerely,

W. H. Forst
State Tax Commissioner

Rulings of the Tax Commissioner