Tax Type
Retail Sales and Use Tax
Description
Lease or Rental; Gross Proceeds; Crane Rentals
Topic
Basis of Tax
Date Issued
12-30-1991
December 30, 1991
Re: §58.1-1821 Application: Sales and Use Tax
Dear*****************
This is to follow up with your meeting on June 27, 1991 with members of my Tax Policy Division staff regarding the department's determination to *************(the "Taxpayer") dated February 29, 1991 (sic).
It is my understanding that the following issues were discussed: (i) transportation-out and knockdown charges, (ii) repair services on bare rentals, (iii) finance charges, and (iv) purchases of fixed assets. I will address each of these separately below.
1. Transportation-out and knockdown charges: You maintain that the transportation-in and assembly, the equipment rental, and the knock-down and transportation are three separate and distinct transactions performed by the Taxpayer. While the Taxpayer may provide all three, one of its competitors may be hired by the equipment lessee to transport the equipment in and assemble it and/or knock it down and transport it out, both transactions of which are nontaxable to the lessee as service transactions. In addition, you maintain that since these are separate and distinct transactions and that the knock-down and transportation services held taxable in the audit did not occur within the lease period, they should not have been held taxable.
I cannot agree, however, that the knock-down and transportation-out charges were completely separate and distinct from the lease of the equipment, and thus hold such charges as taxable as services in connection with the lease of the cranes.
The department has traditionally held that assembly and disassembly charges are subject to the tax regardless of whether they are separately stated on the invoice for the lease of tangible personal property or on a completely separate invoice. Thus, the charges were appropriately taxed in the assessment.
2. Repair services on bare rentals: Based on the additional information provided, I find basis for removing from the assessment separately stated charges for repairs performed on bare rentals in which the repair transaction is entirely separate from the lease agreement. In addition, the "other charges" separately stated labor charges for repairs done to bare rental cranes which are the responsibility of the lessee but which are performed not by the Taxpayer, but by a third party at the Taxpayer's request - will be removed from the assessment. These qualify for exemption from the tax under Va. Code §58.1-608(A)(5)(b) which specifically exempts "[a]n amount separately charged for labor or services rendered in installing, applying or remodeling or repairing property sold."
3. Finance charges: You maintain that the finance charges are not part of the gross proceeds of the lease as they are separately stated and charged only on past due balances. You maintain further that the charges are solely for the use of money and that the proper interpretation of VR 630-10-56 is that such interest or finance charges are taxable only when built into the lease price. For the reasons set forth in the February 29, 1991 letter, I will continue to hold these taxable. I have enclosed a copy of a prior Ruling of the Commissioner, P.D. 87-241 (10/23/87), which specifically addresses your concerns.
4. Purchase of fixed assets: Based upon the information provided during the meeting, I will remove from the assessment the tax on items 1, 11, 25, 26, and 27 which were used only for bare rentals.
The Taxpayer is in a unique business in that it leases cranes with operators (FMO) and on a bare rental basis. In addition, it occasionally contracts to erect steel itself. The Taxpayer generally knows at the time of purchase how the crane will be used, but there are instances in which a crane purchased for bare rentals may be used either by the Taxpayer in its contracting work or on a fully maintained and operated basis. Additionally, on occasion, the Taxpayer has been requested to provide an operator for a crane leased on a bare rental basis when the lessee's operator became sick.
You seek direction as to the appropriate tax treatment of cranes which, when purchased, are intended for use as bare rentals, and thus exempt, yet are later withdrawn from inventory for use, generally for a very short period of time such as a week, by the Taxpayer in a construction contract. Once the Taxpayer finishes with it, the crane is returned to the rental inventory.
While we are aware of the unique operations of the Taxpayer, sales tax application must be applied by law based upon individual moments of transactions. When property is purchased by a consumer for use as a rental, the sale is deemed exempt at that moment of transaction. If such property is later put to a different use, such as leased on a fully maintained and operated basis or used by the Taxpayer in construction contracts, sales tax application must be again determined at the moment of the transaction. Sales tax applications must be determined based upon the particular use of property at the time of varying uses.
Thus, the Taxpayer is required to remit use tax to the department when a crane is withdrawn from its rental inventory for its own use or when leased on an FMO basis. When the equipment is returned to the rental inventory, the tax must be collected and remitted based on the lease proceeds.
However, in instances when the Taxpayer is requested to provide an operator for a crane that had been leased on a bare rental basis due to the illness of the lessee's operator, the taxability of the particular lease will not change provided the lease agreement is not changed and that the lessee maintains full responsibility for the crane as it would without the Taxpayer's operator.
Accordingly, the assessment will be revised as set forth above and in prior correspondence with the Taxpayer, and an auditor from the ************* District Office will be contacting the Taxpayer in order to establish a partial payment plan as you requested at the meeting. In addition, as requested, the auditor will review the Taxpayer's fixed asset purchases made since 1989 to determine any sales tax liability.
If you have any questions, please contact the department.
Sincerely.
W. H. Forst
Tax Commissioner
TPD/5286
Rulings of the Tax Commissioner