Tax Type
Retail Sales and Use Tax
Description
Maintenance contract for the care of plants
Topic
Taxability of Persons and Transactions
Date Issued
05-10-1988
May 10, 1988
Re: §58.1-1821 Application/ Sales and Use Tax
Dear*********************
This will reply to your letter of October 31, 1987 on behalf of ************ (taxpayer), a nonresident corporation doing business in Virginia, seeking correction of a sales and use tax assessment for the period April 1982 through October 1985.
FACTS
Pursuant to contracts with customers, the taxpayer provides plants and the fertilizer, water, pruning and other services necessary to properly maintain the plants on the premises of its customers. The taxpayer also replaces plants which have died or otherwise become unhealthy. In this connection, the taxpayer was recently audited and held liable for failing to collect and report the tax on its charges to customers for such plants and plant maintenance. The taxpayer contests the assessment contending that its contracts with customers represent personal service contracts exempt from the sales tax under Virginia Regulation (VR) 630-10-97.1, since the true object of the contracts was not the provision of tangible personal property.
In addition, the taxpayer contends that the department should be stopped to enforce the assessment against it since it was merely relying on instructions received from department personnel at the time of setting up its business in 1977, and since it was never informed by the department of changes which it asserts occurred in the department's regulations concerning sales of maintenance contracts in 1979.
Lastly, the taxpayer seeks adjustment of the assessment for certain inaccuracies which it contends exist in the audit methodology used by the department's auditor.
DETERMINATION
Virginia Code §58.1-603 imposes the sales tax on the "gross sales price of each item or article of tangible personal property when sold at retail or distributed in this State."
The term "sale at retail" is defined in §58.1-602(14) as "a sale to any person for any purpose other than resale in the form of tangible personal property or services taxable under this chapter..." Subsection (19) of this same Code section then defines "tangible personal property" to mean, "personal property which may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses."
The department's position regarding the taxability of maintenance contracts, such as those sold by the taxpayer in this case, which for an annual or periodic fee provide for the repair or replacement of items of tangible personal property, is one of long standing. While this policy was recently set forth in the form of a new regulation - Virginia Regulation 630-10-62.1, it was previously set forth in §1-90 of the 1969 regulations, a copy of which is enclosed. Therefore, contrary to the taxpayer's contention, there was no abrupt change in the department's policies pertaining to sales of maintenance contracts in 1979.
Moreover, the department's administrative response to the taxpayer's application for a certificate of registration dated July 8, 1977 is consistent with the regulation's treatment of sales of maintenance contracts as sales of tangible personal property.
Based on all of the foregoing I find no basis at this time for correction of the assessment in this case. However, if the taxpayer can provide documentation, within thirty days of the date of this letter, which demonstrates that the department's audit inaccurately estimated its actual sales and use tax liability, consideration will be given to adjusting the audit on this basis. Such documentation should be remitted to the department's Technical Services Section, at P.O. Box 6-L, Richmond, Virginia 23282. If such information is not received by the department within thirty days a revised notice of assessment, including accrued interest since the date of the assessment, will be sent to the taxpayer under separate cover and be immediately due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner