Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Long-term tractor-trailer rentals
Topic
Taxability of Persons and Transactions
Date Issued
03-04-1994
March 4, 1994
Re: Request for Ruling: Retail Sales & Use Tax
Dear**************
This will reply to your letter seeking a ruling on the applicability of the retail sales and use tax to long-term (over 12 months) leases of tractor trailers and related charges by your company, the "Taxpayer."
FACTS
The Taxpayer, a full service tractor trailer leasing company, provides for full service leases and maintenance contracts each of which are billed in two components, a fixed component and mileage-based component. You seek a ruling on the applicability of the tax to the above contracts.
RULING
The full service lease is comprised of and billed in two components -- a fixed lease component covering all the costs of leasing except maintenance (cost of vehicles, licensing, etc.) and a maintenance charge which is based on the miles driven. The maintenance charge covers all maintenance, including parts, labor and outside services related to the vehicle.
The maintenance contract is also comprised of and billed in two components--a fixed lease component covering pass-through expenses incurred by the Taxpayer as operational costs of doing business, and a maintenance charge structured the same as the maintenance charge for the full service leases.
Generally, sales, leases and rentals of motor vehicles and the charges relating to these transactions are not subject to the retail sales and use tax provided they are subject to the motor vehicle sales and use tax administered by the Department of Motor Vehicles (DMV). A three percent motor vehicle sales and use tax is generally levied on the sale or use of motor vehicles in Virginia, other than a sale to or use by a person for rental as an established business. A four percent motor vehicle sales and use tax is generally levied upon the rental of a motor vehicle for a period of less than twelve months. Further, a six and one-half percent motor vehicle tax is imposed on daily rental passenger vehicles. Generally, the same transaction may not be taxed more than once.
It is our understanding from DMV that the fixed lease component of the full service lease is not subject to the motor vehicle sales and use tax since the tax was paid by the Taxpayer on the vehicles at the time of purchase. The motor vehicle rental tax is inapplicable since the term of the Taxpayer's leases is greater than twelve months. Furthermore, the fixed lease component is not subject to the retail sales and use tax since the motor vehicle sales and use tax was paid on the vehicle at the time of purchase.
With respect to maintenance contracts, the application of the sales and use tax to such contracts is set forth in Virginia Regulation (VR) 630-10-62.1, a copy of which is enclosed. Under the regulation, contracts that provide both repair or replacement parts and repair labor, represent a sale of tangible personal property and thus are subject to the tax based upon their full selling price.
However, in the instant case, since the maintenance components of the full service lease and of the maintenance contract are separately stated and only these components related to the actual maintenance of the vehicles, only these components (and not the full service lease nor the entire maintenance contract) are subject to the retail sales and use tax.
You should note that legislation exempting from the sales and use tax one-half of the total charge for maintenance contracts when such contracts provide for both repair or replacement parts and repair labor beginning January 1, 1996 (SB 28) has been passed by the 1994 General Assembly and is awaiting the Governor's signature. If this legislation is signed into law, the department will be required to revise its regulations to reflect this change. We anticipate working with affected industries to ensure a smooth transition with respect to this change.
If you have any further questions, please feel free to contact me.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
Rulings of the Tax Commissioner