Tax Type
Retail Sales and Use Tax
Description
Leasing; Custom and canned software
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
10-25-1991
October 25, 1991
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****************
This will reply to your letter of May 28, 1991 seeking information on the application of the sales and use tax to leases of tangible personal property by**********(the Taxpayer).
FACTS
The Taxpayer is a national leasing company and requests information on various issues involved in the leasing of tangible personal property. In addition, the Taxpayer requests information on the taxation of "canned" and "custom" software, as well as information concerning the lease of vehicles in Virginia.
RULING
Please find enclosed a copy of the Virginia Retail Sales and Use Tax Regulations which addresses many of the issues raised in your letter. I will respond to your questions as they are outlined in your letter.
Questions 1 and 2
Virginia Regulation (VR) 630-10-57 provides that "[a]ny person engaged in the business of leasing or renting tangible personal property to others is required to register as a dealer and collect and pay the tax on gross proceeds." Additionally, tangible personal property for future use for taxable lease or rental may be purchased tax exempt under a resale certificate of exemption.
Conditional sales contracts differ from leasing agreements in that title to the property automatically passes to the buyer upon completion of the contract terms and no additional payment is warranted. Under a true conditional sales contract, the tax is due on the total sales price less separately stated interest charges as provided in VR 630-10-95. I am unable to make a definitive ruling on the Taxpayer's situation based upon the information provided. However, the application of the tax to situations involving lease agreements and conditional sales contracts is discussed further in the enclosed PD 89-152 (4/28/89) and PD 87-241 (10/23/87).
Question 3
If the Taxpayer purchases tangible personal property from an out-of-state vendor who is not registered with Virginia, the use tax is due directly from the Taxpayer, unless the tangible personal property is held for a future taxable lease or resale. (See VR 630-10-109.)
Questions 4 through 8
VR 630-10-57 defines gross proceeds to include "charges made for the lease or rental of tangible personal property and any finance or interest charges, insurance charges, charges for property tax on the property being leased, and other similar charges." The above cited regulation clearly subjects to the tax any charges in connection with the lease of property. Therefore, the personal property taxes, financing statement fees, late payment and finance charges, and insurance risk fees are all taxable, even if separately stated.
Questions 9 and 10
I have enclosed a copy of PD 89-181 (5/31/89) which responds directly to the question concerning "canned" and "customized" software. As indicated in the ruling, only sales of "custom programs," as defined in Va. Code §58.1-602 (copy enclosed), qualify for exemption from the sales and use tax.
Questions 11 and 12
The Taxpayer is liable for personal property taxes as the owner of leased equipment. While the Taxpayer may be reimbursed for the tax from its lessees, the personal property tax is a debt of the lessor and the personal property tax exemption afforded certain entities does not flow through to the Taxpayer.
The Virginia courts have adopted the doctrine of strict construction in reviewing sales and use tax exemptions, that is, taxation is the rule and exemption is the exception. The only exemptions from Virginia Retail Sales and Use Tax are set out in Va. Code §58.1-608 (copy enclosed).
Question 13
With respect to leases of motor vehicles, the motor vehicle sales tax is administered by the Department of Motor Vehicles. You may contact that office at 2300 W. Broad Street, Richmond, Virginia 23220. I have enclosed a copy of the statute which authorizes the collection of such tax.
I hope that the enclosed information responds to all your questions. If you have further questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5239J
Rulings of the Tax Commissioner