94-230 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Services; Professional or personal; Account reconciliation services

Topic

Taxability of Persons and Transactions

Date Issued

07-28-1994

July 28, 1994

Re: §58.1-1821 Application: Retail Sales & Use Tax

Dear*************

This will reply to your letter seeking correction of a sales and use tax assessment to your client, the*****************(the "Taxpayer"), for the period January 1990 through December 1992.

FACTS

The Taxpayer, a labor organization that provides health insurance benefits to its members, contests the tax assessed during a recent audit on charges for processed microfilm by its bank. The Taxpayer receives certain account reconciliation services from the bank including, but not limited to, microfilmed versions of checks which have been presented for payment, storage of the original checks for three months, and a microfilm report listing checks in serial number order and in the order of dollar amount. The charges for the various "services" generally are separately stated on the monthly statements, yet the charges for the check storage and microfilming are lumped together as one charge.

Taxpayer maintains that the microfilm is being provided as part of the overall, integrated banking services provided by the bank, and accordingly is nontaxable. The auditor, however, held the charges for the microfilm processing and check storage taxable as separate and distinct retail sales of tangible personal property.

DETERMINATION

Va. Code §58.1-609.5(1) provides an exemption from the retail sales and use tax for "personal, professional, or insurance transactions which involve sales as inconsequential elements for which no separate charge is made."

Virginia Regulation (VR) 630-10-97.1 which interprets the above statutory provision provides that:

- [i]n determining whether a particular transaction which 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. If the object of the transaction is to secure a service and the tangible personal property which is transferred is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.

The "true object" sought by the Taxpayer in the instant case is not the microfiche itself, but the account reconcilation services provided by the bank. The microfilm is an inconsequential element of the overall account reconciliation services as even without the availability of the microfilm, the Taxpayer would continue to seek account reconciliation services from the bank. The services enable the Taxpayer to verify the balance in its account, determine which benefit checks have been presented for payment, and provide evidence (by means of copies of cancelled checks) to any member who questions whether payment has been made.

This situation is readily distinguishable from businesses engaged in microfilming documents in which case the true object sought by the customer is the microfilm itself. Without a suitable finished product - the microfilm itself, customers would not seek the services of a microfilm business.

Accordingly, the audit will be revised to remove the tax, interest, and penalties assessed with respect to the charges for the microfilm. Since you have paid the uncontested portion of this assessment, this audit revision will eliminate the remaining balance.

Sincerely,

Danny M. Payne
Tax Commissioner

OTP/7532H

Rulings of the Tax Commissioner