Tax Type
Retail Sales and Use Tax
Description
Coffee/Beverage Service; Brewing machines
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
03-26-1993
March 26, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear*************
This will respond to your letter of September 14, 1992 submitting an offer in compromise on behalf of your client,***************** (the "Taxpayer"). Based on the information provided, I, however, feel it is more appropriate to treat this as a reconsideration under Va. Code § 58.1-1821.
FACTS
The Taxpayer, the operator of a coffee/beverage service, recently audited and found to have failed to pay sales tax/remit use tax on its purchases of brewing machines and related equipment used in providing its coffee service. It contested the assessment on the grounds that the equipment is technically "leased," although no specific charge for such is stated on customer agreements or invoices.
The department determined in P.D. 92-146 (8/19/92) that from the information provided, the equipment is "loaned" not leased to customers and thus was properly held in the assessment. Further, it was explained that the department has traditionally held coffee service companies liable for the sales and use tax on purchases of coffee machines. The Taxpayer now maintains that the department's tax treatment of coffee services results in double taxation and points out that such taxation puts it at a competitive disadvantage with similar companies which "bifurcate similar customer transactions between the machine rental and product sales."
DETERMINATION
Based upon a review of the information provided I find no basis for revision of my original determination to the Taxpayer dated August 19. 1992 or acceptance of the Taxpayer's proposal to pay ***********of the outstanding *************** liability. The Taxpayer's agreements for coffee service specifically state that the equipment is "loaned" not leased to customers. Thus, the Taxpayer is the actual user and ultimate consumer of the equipment in question. For your review, I have enclosed a copy of P.D. 92-107 (6/24/92) further explains the department's position with respect to "loaned" property provided to customers.
In the future, if the Taxpayer can demonstrate that its beverage service agreement constitutes a valid lease agreement for the equipment, it may purchase such equipment exempt from the tax. The agreement must contain separate lease provisions specifically for the lease of equipment (i.e., terms and conditions, etc.) or a separate lease agreement for the equipment must be executed. In addition, the agreement must provide a set amount for the lease of the equipment (not a range or percentage), and invoices provided to customers must separately state the charge for the lease of the equipment.
Accordingly, I find no basis for acceptance of the Taxpayer's offer. The********** previously submitted will be applied against the Taxpayer's outstanding balance and a revised Notice of Assessment will be sent to the Taxpayer shortly.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6426H
Rulings of the Tax Commissioner