Tax Type
Retail Sales and Use Tax
Description
Repair parts used by common carrier
Topic
Taxability of Persons and Transactions
Date Issued
11-16-1993
November 16, 1993
Re: §58.1-1821 Appeal: Retail Sales & Use Tax
Dear***************
This is in reply to the letter from your client,*********** (the "Taxpayer"), dated August 27, 1992 and your letter of October 19, 1992 in which you seek correction of a retail sales and use tax assessment for the period April 1984 through March 1990.
FACTS
The Taxpayer is a common carrier which transports freight by truck. In conducting its operations, the Taxpayer leases trucks from other truck owners in order to haul freight. These truck owners usually drive their own trucks or provide an employee to drive the truck when hauling the freight for the common carrier. The truck owners are not registered with the Interstate Commerce Commission (ICC) or the State Corporation Commission to operate their vehicles. Each truck is operated under the complete control of the Taxpayer for regulatory purposes. In addition, the Taxpayer pays for insurance, tags, and motor fuel road taxes on the trucks.
When a truck is in need of repair, the Taxpayer will pay for the repair. It will then reduce its lease payment due to the owner by the cost of the repair. The Taxpayer contends that the truck owners are not, by definition, "carriers." Instead, they are lessors of their vehicles. Therefore, the Taxpayer contends that parts used by the Taxpayer in the repair of the owner's trucks should be exempt from tax under Virginia Regulation (VR) 630-1024.3(A)(1).
DETERMINATION
VR 630-10-24.3 (A)(1) provides, in pertinent part, that:
-
- For sales and use tax purposes, a carrier who contracts to haul for a common carrier and in performance of that contract furnishes the motor vehicle, driver, and any other necessary tangible personal property is not a lessor of motor vehicles and is not entitled to a resale exemption on the purchase of tangible personal property, such as repair parts, used in the performance of the contract. This applies even though such carrier may operate under the ICC rights of the common carrier. (Emphasis added.)
- For sales and use tax purposes, a carrier who contracts to haul for a common carrier and in performance of that contract furnishes the motor vehicle, driver, and any other necessary tangible personal property is not a lessor of motor vehicles and is not entitled to a resale exemption on the purchase of tangible personal property, such as repair parts, used in the performance of the contract. This applies even though such carrier may operate under the ICC rights of the common carrier. (Emphasis added.)
In this case, the owner provides a service by leasing a truck with a driver to the Taxpayer; therefore, the owner is subject to the tax on the cost of the parts used to repair the truck. This finding is reinforced by the fact that the Taxpayer reduces the owner's compensation for any repairs furnished. As such, the Taxpayer, when it repairs a truck on behalf of the owner, should pay tax to the repair business and include the tax in the cost by which the lease payment will be reduced.
In your letter, you expressed concern that the owners were not considered "carriers"; therefore, the provisions of VR 630-1024.3(A)(1) do not apply. As used in this section of the regulation, the term "carrier" generically applies to any person operating as a common carrier, a contract carrier, or any other carrier which transports property.
Accordingly, I find no basis for correction of the audit assessment. The balance of the assessment is due and payable within 30 days from the date of this determination.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6388N
Rulings of the Tax Commissioner