Tax Type
Retail Sales and Use Tax
Description
Office Equipment and Supplies
Topic
Taxability of Persons and Transactions
Date Issued
11-03-1986
November 3, 1986
Re: §58.1-1821 Application / Sales and Use Tax
Dear ********************
This will reply to your letter of July 24, 1985 and additional information submitted to members of my staff in meetings held at the department on January 3, 1986 and September 24, 1986, requesting correction of the above referenced assessment.
FACTS
In connection with its provision of telecommunications systems and service, ********** (taxpayer), was assessed for sales and use tax on certain untaxed purchases of office equipment and supplies, and on its purchases of certain fixed assets for which the tax was neither paid to suppliers nor remitted directly to the department. Taxpayer contends that a large portion of those purchases identified as fixed assets actually represented "contracted services" for which it should not be required to pay the tax.
However, while taxpayer has frequently reiterated its position with regard to such fixed asset purchases, it has not produced any documentation or invoices which would refute the department's understanding that such purchases did not also involve the transfer of significant amounts of tangible personal property for which the tax is required to be paid.
In addition, taxpayer contends that many of the items held subject to tax in the audit represented real property for which it was required to pay property tax to Virginia. However, taxpayer has provided no evidence of having paid tax on any such property, nor any other information, in support of this contention.
Taxpayer also contests the imposition of the tax on certain untaxed leases of equipment from sister corporations stating that such taxation results in possible double taxation by the department. Furthermore, taxpayer seeks waiver of all interest assessed on such leases, since at all times applicable to this audit, it operated under the good faith belief that it was not subject to the tax on such leases.
In the alternative, taxpayer contends that even if its purchases are deemed by the department to be purchases of tangible personal property, they qualify for exemption from the tax under §58.1-608(14) of the Virginia Code, relating to purchases by public service corporations. It is our understanding that taxpayer did not qualify as a public service corporation until September, 1984 well beyond the end of the audit period which extended through June, 1984.
DETERMINATION
§58.1-608(2) of the Virginia Code provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made,..." Accordingly, §630-10-97.1 of the Virginia Retail Sales and Use Tax Regulations explains that "[t]he tax does apply to charges made for ..:(1) an. services included in or in connection with the sale of tangible personal property." This regulation section provides further that "[i]f the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service." Conversely, "if the object of the transaction is to secure the property which it produces, then the entire charge, including services provided, will be taxable."
Since taxpayer in this case was unable to produce invoices to show that the bulk of its purchases of fixed assets involved purchases of separately stated contract services or labor, I find no basis for correction of this portion of the audit.
§58.1-603 of the Code imposes the tax on "the gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental is an established business or part of an established business." §58.1-602(4) of the Code then defines "Gross proceeds" to mean the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services."
Inasmuch as taxpayer failed to pay the tax on its rental of equipment from its sister corporations. it is now liable for consumer use tax to the extent of the gross receipts from such leases. With regard to taxpayer's contention that requiring payment of the tax on such leases results in possible double taxation, taxpayer has failed to produce any evidence which would show that the tax was paid at the time of purchase of such items by its sister corporations. In the event that taxpayer can produce such information showing payment of the tax on such equipment purchases, within 30 days of the date of this letter, I will consider allowing a credit against its tax liability on such rentals.
Taxpayer's final contention is that all of its purchases of tangible personal property were exempt of the tax as purchases by a "public service corporation" under §58.1-608(10) of the Code. This section provides in pertinent part for an exemption from the tax for, "[t]angible personal property sold or leased to a public service corporation subject to a state franchise or license tax upon gross receipts, for use or consumption by such corporation directly in the rendition of its public service...
§630-10-87 of the Sales and Use Tax Regulations provides that the term "public service corporation" means, "entities which have been issued certificates of convenience and necessity by the State Corporation Commission" While taxpayer may have been operating in Virginia in the same manner as other public utilities during the period covered by the audit, the department understands that it was not certified by the State Corporation Commission as a public service corporation until September 1, 1984, more than two months beyond the end of the audit period in this case. Therefore, I find no basis for adjusting the audit on this issue.
In addition, taxpayer's contention that such a finding of taxability would be discriminatory since competing telecommunications entities enjoyed exemption from the tax during the audit period in question is mooted by the fact that such competing entities were public service corporations under Virginia law, and were therefore subject to regulation by the State Corporation Commission during this time period.
Based on all of the foregoing, I find no basis for correction of any part of the audit assessment in this case. However, while taxpayer has already been given ample time within which to submit additional documentation in support of its contentions, will give it an additional period of 30 days within which to produce invoices showing the payment of the tax at the time purchase of any of the leased equipment held subject to tax in the audit. It should be noted however, that only those purchases of leased equipment which occurred within three years of the date of the assessment will qualify for any credit against the tax liability in this case pursuant to the statute of limitations provided in §58.1-1825 of the Code.
Such additional information should be sent to the department's Technical Services Section, Office Services Division, P. O. Box 6-L, Richmond, Virginia 23282. At the end of this 30 day period, the entire assessment will become due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner