Tax Type
Retail Sales and Use Tax
Description
Tangible personal property
Topic
Appropriateness of Audit Methodology
Property Subject to Tax
Taxable Income
Date Issued
05-21-1982
May 21, 1982
This will reply to your letter of January 8, 1982, in which you apply for correction of use tax assessed against *********** as the result of a recent audit.
FACTS
*********** is an architectural firm with offices in Norfolk, Virginia. In connection with providing architectural services, ***********purchases "renderings", which are paintings or sketches of an architectural project. These renderings, which are produced from a photograph or blueprint, may be used for display at the project, in ************* or in brochures.
Use tax was assessed on the purchase of renderings by from *********** a firm located in Ohio.
Determination
§58-441.2(b) of the Code of Virginia defines a "sale" as:
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- any transfer of title or possession, or both . . . in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration, and includes the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication.
- any transfer of title or possession, or both . . . in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration, and includes the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication.
Virginia Code §58-441.6(a) exempts from the definition of retail sale:
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- Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made.
In interpreting this section both the Department and courts in other taxing jurisdictions have looked to the true object of the transaction, i.e., is the object sought by the purchaser the service or the property which is produced by the service.
To this end, §l-82 of the Virginia Retail Sales and Use Tax Regulation provides that the tax will apply to sales of "photographs, portraits, prints, slides from camera film, photostats, blueprints, frames, camera film, etc." (emphasis added). In formulating this regulation the intrinsic and lasting value of the article produced was not a consideration. Rather, the fact that the object sought by a customer in transaction including film, etc., is the article produced by the service was controlling.
The Ohio Supreme Court in interpreting a sales and use tax statute nearly identical to §58-441.6(a) has consistently adopted a true object test, holding that in order for a transaction to constitute a service the functional inconsequentiality of the tangible personal property being transferred must be given great weight. (See Recording Devices v. Porterfield (1972), 30 Ohio St.2d 208,283 N.E.2d 626 and Columbus Coated Fabrics v. Porterfield (1972), 30 Ohio St.2d 307, 258 N.E.2d 50.) Further in the case of Federated Department Stores, Inc. v. Kosydar (45 Ohio St.2d, 1 340 N.E.2d 840, 1976), the Ohio Court held that in a transaction whereby a department store contracted with freelance artists for the production of specified sketches, the true object of the transaction was the acquisition of the sketches themselves, thus a retail sale of tangible personal property had occurred. The facts ofFederated Department Stores, Inc., (supra) closely parallel those in the instant case.
Based upon the foregoing, I find no basis for relief of the audit assessment. Should you desire a hearing on this matter, please contact this department within thirty days; otherwise, this determination will be deemed final.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner