Tax Type
Retail Sales and Use Tax
Description
Leases; Late fees, order processing charges, pick up charges
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
01-07-1994
January 7, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letters of February 17, 1993 in which you seek correction of sales and use tax assessments issued to **** ("the Taxpayer").
FACTS
The Taxpayer operates retail centers throughout Virginia which rent primarily televisions and appliances on a daily, weekly and monthly basis and on a rent-to-own basis. An audit for the period September 1989 through March 1992 produced an assessment for the Taxpayer's failure to collect the tax on specific charges made to customers. Such charges include fees for order processing, delivery, late fees and trip fees (which include charges to pick up rented property and charges to collect rental payments from customers). I note that all assessed transactions occurred in the first 15 months of the audit period and that subsequent to November 1990 the Taxpayer charged and collected the tax on these specific charges, excluding separately stated delivery fees.
The Taxpayer contends that late fees are excluded from the definition of "sales price" as defined in Virginia Regulation (VR) 630-10-95. Accordingly, you propose that the taxes assessed on the other contested charges be offset by the tax which the Taxpayer has collected subsequent to November 1990 on late fees. Alternatively, you propose that the assessment be abated as the Taxpayer should not be held liable for tax collection requirements of which it had no knowledge.
DETERMINATION
Based on the documents submitted with your correspondence, separately stated charges made by the Taxpayer for the delivery of its rental property will be removed from the assessment.
As defined in VR 630-10-107, "transportation" and "delivery charges" mean "charges for delivery from the seller to the purchaser...." Historically, charges made by lessors to pick up rented property from customers were deemed taxable, even when such charges were separately stated. However, in connection with its upcoming revision of VR 630-10-107, the department has reviewed this policy and has determined that transportation charges to pick up rented property from customers will not be subject to the tax in the near future.
Therefore, upon readoption of VR 630-10-107 (which is expected on July 1, 1994), the Taxpayer will not be required, on a prospective basis, to collect the tax on charges made to customers for the pick up of rental property, provided such transportation charges are separately stated. Further, the transportation exemption applies only to the delivery and pick up of property. The pick up of rental payments is deemed to be a taxable service, and the transportation fees for this service are taxable. If these taxable fees remain combined with nontaxable charges for the pick up of rental property, the entire charge is taxable. This policy change is being made on a prospective basis so as to put all rental property dealers on an equal footing for tax purposes.
In regard to the other charges made to customers, please see the enclosed Public Document 87-241 (10/23/87) which addresses many of these same issues. Based on that determination, I find no basis for accepting the Taxpayer's contention that late fees and other contested charges are excluded from taxable gross proceeds which the Taxpayer derives from the lease or rental of tangible personal property.
Because late fees represent a taxable charge, I cannot accept the Taxpayer's proposal that the assessment for taxes on order processing fees and trip fees be offset by taxes collected on late fees for periods subsequent to November 1990. Nor can I agree to abate the assessment based on the Taxpayer's "due process" argument that it was unaware that the tax applied to the contested charges. This argument overlooks the fact that Virginia law clearly applies the tax to the "total" charge for which goods are sold or rented. Also, the department's policies in this area have been disseminated through publicly available regulations and determinations.
Accordingly, except for the removal of separately stated delivery charges, I find the assessment correct as issued. As soon as practicable, the Taxpayer will receive a revised assessment reflecting the removal of delivery charges but with interest accrued to date. The revised assessment must be paid within 30 days to prevent the accrual of additional interest charges.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6763/6765I
Rulings of the Tax Commissioner