Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal; Sales training seminars
Topic
Taxability of Persons and Transactions
Date Issued
05-23-1994
May 23, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****
This will reply to your recent letter in which you request a ruling on the application of Virginia's sales and use tax to a specific situation for ********(the "Taxpayer").
FACTS
The Taxpayer provides training seminars and program materials, primarily in the sales and service areas. In some cases, the Taxpayer will customize its standard products and develop materials and seminars to meet the specific needs of its clients. A separately stated fee is charged for this development and custom work. There may also be a fee for the use of master plates from which a client can print the material and a license fee for the right to use these plates. The contract provides that the master plates must be returned by a specified date and that the client is granted the right to reproduce the material for training a specified population during this period.
You request a ruling on the application of the sales and use tax to the various components of the above transaction.
RULING
Training services and program materials: Va. Code §58.1-609.5(1) provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
As noted in Virginia Regulation (VR) 630-10-97.1, "in order to determine whether a particular transaction involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the 'true object' of the transaction must be examined."
Based on the facts as presented, the true object of the transaction at issue is the provision of training services by the Taxpayer. Therefore, the charges for the training programs, which include charges for required materials provided by the Taxpayer to course participants, are exempt from the tax as charges for services. Similarly, separately stated fees charged for developing materials and seminars and customizing standard products are fees for services and are not taxable. However, separately stated charges for materials, such as workbooks and tapes, are subject to the tax.
It should be noted that as a provider of a nontaxable service, the Taxpayer is the user and consumer of all items purchased for use in providing such training, and must either pay the tax to its suppliers at the time the purchases are made or remit the use tax directly to the department based on the cost price of the items.
Furthermore, if the Taxpayer sells training materials independent from its provision of training services, the Taxpayer is deemed to be a retailer. In such a case, the Taxpayer must either purchase the materials exempt from the tax under a resale certificate of exemption and then collect the tax from its customers at the time of resale or remit the tax directly to the department based on the sales price of such items.
Fee for use of master plates/license fees: Va. Code §58.1-603 imposes the sales tax upon "each item or article of tangible personal property ... sold at retail ... in this state." The term "sale" is defined in Va. Code §58.1-602 as "any transfer of title or possession ... of tangible personal property."
In this case possession of the master plates is transferred for consideration; therefore, the transaction is a sale of tangible personal property. The customers use the plates so they can print the materials for their own use (providing training services) and do not resell the printed materials. If the Taxpayer's customers take possession of the master plates in Virginia, the fee is subject to the tax. The customer must either remit the tax on the fees to the Taxpayer at the time possession of the master plates is transferred or remit the use tax directly to the department.
Similarly, the licensing of the master plates constitutes a taxable lease or sale when the licensing agreement conveys not only the right to use the plates but also the plates themselves in tangible form. Therefore, the license fee is subject to tax.
As you requested, I have enclosed the applicable law, regulations and rulings. If you have any other questions regarding this matter, please contact the department.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7572F
Rulings of the Tax Commissioner