Tax Type
Retail Sales and Use Tax
Description
Services; Portable Toilets
Topic
Taxability of Persons and Transactions
Date Issued
10-28-1991
October 28, 1991
Re: §58.1-1821 Application: Sales and Use Tax
Dear**************
This will reply to your letter of October 29, 1990, on behalf of**********(the Taxpayer), seeking correction of a sales and use tax assessment for the period of January 1987 through December 1989.
FACTS
The Taxpayer began doing business on June 1, 1968, as a refuse disposal service operation. In 1987, the Taxpayer expanded its operation to include the leasing and servicing of portable toilets. The Taxpayer continued to treat itself as a service business with respect to the portable toilet operation. A third generation audit was conducted on the Taxpayer for the period of January 1987 through December 1989. The Taxpayer was assessed sales tax for the failure to collect tax on the rental of the portable toilets during the period of the audit. The Taxpayer contests the assessment on the grounds that the tangible personal property, i.e. portable toilets, is incidental to the service rendered, i.e. waste removal, and should be treated in the same manner as their refuse disposal operation.
DETERMINATION
Virginia Regulation (VR) 630-10-97.1 addresses "Services", and subsection (B)(2) of this regulation states, in part, the following:
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- Service vs. sale. In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred is not critical to the transaction, then the transaction may constitute a service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including services provided, will be taxable.
- Service vs. sale. In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred is not critical to the transaction, then the transaction may constitute a service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including services provided, will be taxable.
However, Va. Code §58.1-105 provides to the Tax Commissioner the authority to accept offers in compromise of taxes of doubtful liability or doubtful collectibility. As this is the first audit of the Taxpayer on this issue and the Taxpayer has historically operated as a 100% service business, I will entertain a reasonable offer in compromise in settlement of the contested portion of the audit. It should be noted that for the future, the tax is applicable to all portable toilet rentals unless a valid certificate of exemption is obtained from the consumer
If you should have any questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5202K
Rulings of the Tax Commissioner