Tax Type
Retail Sales and Use Tax
Description
Gross proceeds; Deductions
Topic
Taxability of Persons and Transactions
Date Issued
10-10-1984
October 10, 1984
Re: Request for Ruling/Sales and Use Tax
Dear *********
This will reply to your recent letter in which you submit a request for a ruling on the applicability of the sales and use tax to termination penalty charges added to lease contracts.
§ 58-441.3(f) of the Code of Virginia defines the term "gross proceeds," upon which the sales and use tax is based, 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 in subparagraph (b) of this section." Subsection (b) of Virginia Code § 58-441.3 provides deductions from the sales and use tax basis for "labor or services rendered in installing, applying, or remodeling or repairing property sold, finance charges, carrying charges, service charges or interest from credit extended on sales of tangible personal property under conditional sale contracts or other conditional contracts providing for deferred payments of the purchase price, or transportation charges separately state."
The charge referenced in your letter is a third party refinance charge imposed upon customers to terminate leases from other vendors. To obtain business from such customers, ***** pays these charges, but adds the cost to new lease contracts with customers. By their nature, such charges are not finance, carrying, or service charges and are therefore includable in taxable gross proceeds.
Based on the foregoing, if a customer pays a termination fee on his own, that fee would be subject to the tax. However, ***** in effect purchases termination fees from other vendors and charges them back to new customers over the term of their lease. Accordingly, ***** may provide a resale exemption certificate to other vendors when paying termination fees for new customers, but should include all customer termination fee repayments in gross proceeds for the collection and remittance of the sales tax from leases.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner