Tax Type
Retail Sales and Use Tax
Description
Video club membership fees
Topic
Taxability of Persons and Transactions
Date Issued
02-26-1987
February 26, 1987
Re: Request for Ruling/Sales and Use Tax
Dear ***********************
This will reply to your letter of June 20, 1986, in which you request a ruling on the application of the sales and use tax to video club memberships.
FACTS
Your business is engaged in the sale and rental of movies and other video tapes, typically for use with home video cassette recorders and similar equipment. In connection with the rental of tapes, your business offers membership in two types of "video club."
The first is an economy membership, which entitles a member to rent tapes. While not specified in your letter, it is assumed here that membership in this type of club entitles one to rent tapes at a lower rate than nonmembers and/or relieves one of the necessity of placing a security deposit on each rental. The second is a deluxe membership, which carries the same privileges as the economy membership, but also entitles one to a number of free tape rental.
As the result of a recent audit by the department, you wish to determine the correct application of the sales and use tax to video club membership fees.
RULING
Section 58.1-603 of the Code of Virginia imposes the sales tax upon both the sale of tangible personal property and the lease or rental of such property. Virginia Code §58.1-602.16 in turn defines the term "sale" as meaning "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property...for a consideration." Emphasis added
As you can see, the above statutes are very broad in that they contemplate the imposition of tax upon virtually any type of transaction under which tangible personal property is or can be purchased, leased or rented for a consideration. In applying these principles to your business, one must first determine whether either type of video club membership fee entails the right to rent or receive tapes or other tangible personal property. The deluxe membership referenced in your letter would certainly fit into the taxable category as membership entitles one to the free rental of tapes. It is less clear, however, how the tax would apply to the economy membership as little information was made available to the department in your letter.
If membership in your economy club is a membership which entitles one to rent tapes at lower rates than nonmembers, the club membership fee would be subject to the tax. However, club membership fees would not be taxable if membership merely entitles one to rent tapes without placing a security deposit. I trust that your economy video club fits into one of these categories; however, please advise if this is not the case. In addition, please do not hesitate to contact the department if any further questions arise.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner