Tax Type
Retail Sales and Use Tax
Description
Transportation equipment; Vehicles, vessels; Boat rentals
Topic
Taxability of Persons and Transactions
Date Issued
07-23-1993
July 23, 1993
Re: Request for Ruling: Watercraft Sales & Use Tax
Dear****************
This will reply to your letter of April 23, 1993 in which you seek a ruling on behalf of your client, the "Taxpayer," as to the proper tax treatment of watercraft rentals on a daily and weekly basis.
RULING
Generally, sales, leases, and rentals of watercraft are exempt from the retail sales and use tax they are subject to the watercraft sales tax [Va. Code §58.1-608(A)(1)(j)]. However, vessels exempt from the watercraft sales and use tax are subject to the 4 1/2% retail sales and use tax when sold, leased or rented. I will explain below the appropriate application of both taxes.
Watercraft sales and use tax - Watercraft subject to the 2% watercraft sales and use tax include any contrivance used for transportation on water which is fifteen feet or more in overall length and which is powered by a motor in excess of twenty-five horsepower. The term also includes a sail-powered vessel used for transportation on water which is over eighteen feet in length.
Va. Code §58.1-1403 requires the remittance by registered watercraft dealers of the watercraft sales and use tax on leases or charters or watercraft on the basis of the gross receipts arising from all transactions pertaining to the lease, charter or other use of such watercraft during the preceding calendar month. "Gross receipts" includes the amount received for the lease, charter, or other use of any watercraft, including hourly rental, maintenance and all other charges for the use of any watercraft, and charges for pilots crew, or other services unless separately stated on the invoice.
A dealer subject to the above requirements includes any person who is in the regular business of selling watercraft. (Va. Code §58.1-1401) The department has interpreted this provision as including persons regularly engaged in the lease or rental of watercraft. A watercraft dealer, however, may purchase watercraft for subsequent lease, rental or sale exempt of the tax.
Retail sales and use tax - Boats of less than 15 feet in overall length and powered by motors with less than twenty-five horsepower, such as canoes and kayaks, are subject to the retail sales and use tax. A lessor of these craft may purchase them exempt from the tax, but must charge the retail sales tax to lessees based upon the gross proceeds from the lease or rental.
Tax treatment of leases/rentals by Taxpayer - The Taxpayer rents, either on a daily or weekly basis, watercraft of less than and in excess of 15 feet in length. Accordingly, it may purchase the watercraft exempt from taxation, but must charge the appropriate tax, the 2% watercraft sales and use tax on watercraft as defined above, and 4 1/2% retail sales and use tax on watercraft not meeting the above definition (row boats, canoes, etc.), on its rentals. The appropriate tax should be charged on the total lease charge, including any for services, unless such charges are separately stated on invoices.
I trust this clarifies this issue for you but should you have any other questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6952B
Rulings of the Tax Commissioner