Tax Type
Retail Sales and Use Tax
Description
Landscaper; Plant maintenance contracts
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
07-23-1993
July 23, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This will reply to your letter of September 18, 1992 whereby you seek correction of a sales and use tax assessment for*************** (the Taxpayer).
FACTS
The Taxpayer engages in the sale and maintenance of plants. An audit for the period July 1989 through March 1992 resulted in an assessment predominantly for the Taxpayer's failure to collect the tax on those plant maintenance contracts which called for plant replacements.
The Taxpayer contends that this issue was not raised in a prior audit. The Taxpayer further contends that following the first audit, and with the concurrence of the auditor, the wording of contracts was changed to separate material categories from labor categories in order to correctly charge the appropriate tax.
DETERMINATION
The application of the tax to maintenance contracts is governed by Virginia Regulation (VR) 630-10-62.1. As set out in the regulation:
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- Maintenance contracts, the terms of which provide both repair or replacement parts and repair labor, represent a sale of tangible personal property. The total charge for such contracts is subject to the tax since at the time the contract is entered into it is impossible to ascertain what portion of future repair transactions will represent parts and what portion will represent labor.
Also refer to the enclosed ruling letter issued by the department, Public Document 88-31 (3/2/88), which applies this regulation specifically to plant maintenance contracts. In accordance with this ruling letter and the regulation, maintenance contracts which provide for replacement plants are deemed to be sales of tangible personal property, and the tax applies to the total monthly maintenance fee.
Nor can I find grounds to revise the assessment based on the results of your prior audit. The Taxpayer's contention that contracts were not cited in that audit is contradicted by audit notes which specifically list certain contract customers, some of whom also appear on the current audit. Furthermore, the Taxpayer's claim that material and labor charges were separated on contracts so that "charging appropriate taxes was simplified" is confusing since the current audit shows tax was not charged on plants or any other materials transferred to contract customers.
Therefore, in accordance with the department's longstanding policy regarding the application of the tax to maintenance contracts as noted in publicly available regulations, the assessment is deemed correct and is now due and payable. You will shortly receive an updated bill with interest accrued to date which must be paid in full to avoid additional interest and collection action.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6450I
Rulings of the Tax Commissioner