Tax Type
Retail Sales and Use Tax
Description
Services; professional or personal; Water purification
Topic
Taxability of Persons and Transactions
Date Issued
08-16-1994
August 16, 1994
Re: Request for Ruling: Retail Sales & Use Tax
Dear************
This will reply to your letter of July 11, 1994 in which you seek a ruling on the applicability of the sales tax to certain water purification services performed by one of your company's subsidiaries 'the "Taxpayer").
FACTS
The Taxpayer provides water purification services to meet customers' specific needs. The Taxpayer owns and operates the equipment on a customer's premises and purifies the water from the customer's existing water source. The Taxpayer maintains control of the during operation and performs any necessary repairs or adjustments to the equipment. In some instances, an equipment operator is provided on-site. In other instances, the operator may be off-site but inspects the system as often as once make necessary corrections.
The Taxpayer monitors the system on a 24-hour basis with a computer system which is linked to a telephone modem. Information transmitted by the system is received at the Taxpayer's nearest plant where the data is continually analyzed and evaluated. The customer has no authority to operate or control the equipment, except to turn it off in case of an emergency. The agreement between the Taxpayer and its customers is written as a service contract and not a lease.
You seek a ruling as to the applicability of the sales tax to the above transaction.
RULING
Subdivision 1 of Va. Code §58.1-609.5 provides a sales and use tax exemption for "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
Virginia Regulation (VR) 630-10-97.1 which interprets the above statutory provision explains that for purposes of distinguishing 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 to the customer 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 is taxable.
Based upon the facts present, the "true object" in the instant case is the actual water purification services provided by the Taxpayer. Accordingly, the Taxpayer is the user and consumer of all items purchased in providing such services and thus is required to pay the tax to its vendors on the water purification equipment used in providing its services. In the event the Taxpayer sells a water purification system to a customer, it is required to collect the tax on the sale, notwithstanding the fact that the tax was paid on the original purchase by the Taxpayer.
If you have any further questions about this matter, please let me know.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8274H
Rulings of the Tax Commissioner