Tax Type
Retail Sales and Use Tax
Description
Maintenance contract for the care of plants
Topic
Taxability of Persons and Transactions
Date Issued
03-02-1988
March 2, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear******************
This will reply to your letter dated October 23, 1987 in which you submit an application for the correction of sales and use tax assessed to**************as the result of a recent audit.
FACTS
A recent audit of ************** ("taxpayer") produced an assessment for the taxpayer's failure to remit sales and use tax on purchases of various tangible personal property. Taxpayer contests the assessment of sales and use tax on the monthly maintenance fee for plants on the basis that this type of service contract is not subject to sales and use tax. Taxpayer also contests the assessment of sales and use tax on various other items, contending that the tax was included in the invoice amount.
DETERMINATION
In disputing the remittance of sales and use tax on the fees charged for a maintenance contract for the care of plants, taxpayer contends that the plant company is providing a service. Since the company is responsible for the care and upkeep of the plants and will replace plants as needed for no extra charge, taxpayer maintains that the monthly maintenance fees are not subject to the sales and use tax.
The application of the sales and use tax to maintenance contracts is addressed in Virginia Regulation 630-10-62.1 (copy enclosed). In general, the tax will not apply to contracts which provide for labor charges only. However, the tax will apply to the total charge for contracts which provide both repair or replacement of tangible personal property and labor.
VR 630-10-62.1(D) provides that:
-
- [t]he total charge for such contracts is subject to the tax since at the time the contract is entered into it is impossible to ascertain what portion of future repair transactions will represent parts and what portion will represent labor.
- [t]he total charge for such contracts is subject to the tax since at the time the contract is entered into it is impossible to ascertain what portion of future repair transactions will represent parts and what portion will represent labor.
Taxpayer also contests the assessment of sales and use tax on various other purchases of tangible personal property. These purchases include delivery forms, mulch, a fabricated range hood, and an awning. Item 8 of Schedule A, page 10, which is included as a contested amount by taxpayer, was determined to be nontaxable and is not reflected in the total sales and use tax assessed by this audit.
Taxpayer contends that, for each of the above purchases, the tax was included in the invoice amount. VR 630-10-24 states that "the dealer must separately state the amount of the tax and add the tax to the sales price or charge." (emphasis added) Since the tax is not separately stated on the invoices for these purchases, I must conclude that the sales tax was not paid. When sales tax is not paid at the time tangible personal property is purchased, the use tax applies as provided in VR 630-10-109. While the dealers were obligated to collect the tax on their sales to taxpayer, liability for payment and reporting of the tax shifted to taxpayer at the moment it made such untaxed purchases. Based on the foregoing, I find no basis for a correction of the tax assessed on the purchases of delivery forms, mulch, the fabricated range hood, and awning.
However, if taxpayer can demonstrate that its suppliers collected and paid the sales tax to the department or provide a breakdown of the nontaxable installation charges on any of the above mentioned purchases within thirty (30) days from the date of this letter, the department's Technical Services Division will review the information and make any necessary changes. Please contact the Department of Taxation, office Service Division, Technical Services Section, P. o. Box 6-L, Richmond, Virginia 23282 if you wish to submit such information.
In conclusion, based on the information provided and all the foregoing, I find no basis at this time for abating the sales and use tax assessed the taxpayer by this audit. Unless taxpayer can provide information as requested above for a revision of the audit within thirty days from the date of this letter, the sales and use tax assessed will be due and payable in full.
If you have any questions regarding this matter, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner