Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Research and development
Topic
Taxability of Persons and Transactions
Date Issued
05-24-1996
May 24, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
This is in response to your recent correspondence seeking a ruling that room rental charges made by *******(the Taxpayer) at its residence facility are exempt from the retail sales tax.
FACTS
The Taxpayer is a nonprofit consortium exempt from income taxation pursuant to § 501 (c) (3) of the Internal Revenue Code and manages and operates research and residence facilities. The department previously ruled that the Taxpayer is entitled to the research exemption set out in Code of Virginia § 58.1-609.3(5) for equipment, tools, computers, instruments and other tangible personal property used exclusively and directly in research activities at its research facility.
On the same site as its research facility, the Taxpayer operates a residence facility which is used to provide housing for scientific and research staff that participate in basic on-going research at its research facility. The guest rooms of the residence facility are comparable to hotel or motel rooms and are equipped to provide visiting scientists with access to computer data links so that they may monitor the progress of their research projects at any time. The Taxpayer considers the residence facility to be an integral part of its research activities.
Accordingly, the Taxpayer maintains that its room rental charges qualify for the research exemption or represent charges for nontaxable services. The Taxpayer desires the same consideration as other benevolent organizations which are granted service exclusions under the Code of Virginia.
RULING
Code of Virginia § 58.1-603 imposes the retail sales tax not only on retail sales of tangible personal property, but also on the gross proceeds derived from the sale or charges for rooms, lodgings or accommodations furnished to transients for less than ninety continuous days. Rooms, lodging or accommodations are considered taxable services rather than tangible personal property. See §2(A) of Virginia Regulation (VR) 630-10-74, copy enclosed.
The only exceptions to the retail sales tax are the statutory exemptions set out in Code of Virginia §§ 58.1-609.1 through 58.1-609.10, copy enclosed. Under principles established by the courts, exemptions are strictly construed against the party claiming the exemption. Thus, in order for an exemption to apply to all gross proceeds received for the rental of rooms, lodgings or accommodations by the Taxpayer, the exemption must contain specific language which exempts the sale of lodgings or the sale of taxable services, i.e., meals and lodging.
Research Exemption: The Taxpayer claims that its charges for room rentals should qualify for the research exemption set forth in Code of Virginia § 58.1-609.3(5), which grants an exemption from the retail sales and use tax for:
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- Tangible personal property purchased for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense. (Emphasis added).
As the research exemption cited above does not specifically exempt the purchase or sale of any type of taxable service, the research exemption cannot be used to exempt the Taxpayer's charges for room rentals.
Other Exemptions: As for other organizations which are entitled to an exemption on taxable services, their entitlement is based on specific language contained in the statute which grants an exemption on lodgings or taxable services. For example, see Code of Virginia §§ 58.1-609.8(34), (40), and (50). Although you cite former Code of Virginia § 58.1-608(8)(q) [recodified now as § 58.1-609.8(17)], such exemption applies only to the purchase of tangible personal property and does not extend an exemption to the purchase or sale of any type of taxable services.
Accommodations: The Taxpayer maintains that its on-site accommodations represent the provision of exempt research services. Although on-site accommodations may be essential for scientists conducting research, such accommodations are furnished in order to satisfy the comfort and convenience needs of scientists by furnishing them with a place in which they may sleep, relax, bathe and monitor their research from the rooms which they occupy.
As such, the fees at issue do not constitute exempt research services and can only be considered, at most, collateral to the actual research process. Rather, these fees constitute accommodations, the charge for which is clearly subject to taxation as set out in Code of Virginia § 58.1-603.
There is also a distinct difference between the exempt fees charged by summer camps and the fees charged by the Taxpayer for room rentals. The object of the transaction for summer camp fees addressed by VR 630-10-102 (copy enclosed) is for the sale of recreational, instructional or other exempt services. In such instances, the accommodations are inconsequential to the transaction. In the Taxpayer's case, however, its fees represent charges only for accommodations.
For all of the foregoing reasons and absent a statutory exemption to allow the Taxpayer to exempt its charges for rooms, the department does not have the authority to grant the Taxpayer an exemption from the sales tax on charges for accommodations. Please note, however, that the sales tax does not apply to charges for rooms, lodgings or accommodations furnished to guests for a period of ninety continuous days or more. After the room has been occupied for ninety continuous days, the Taxpayer may refund any sales tax actually collected from the person. See VR 630-10-48(B), copy enclosed.
Enclosed are a questionnaire for legislative consideration of a retail sales and use tax exemption and Tax Bulletin 94-13 which explains the procedure and information required. If you are interested in pursuing legislation which would exempt the sales discussed above, the questionnaire should be completed and forwarded to the legislator who will sponsor the bill for exemption. The legislator should sign the questionnaire and submit it to the department as soon as possible but no later than November 1, 1996.
If you have any questions about this matter, please contact ***** of my Office of Tax Policy at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10795R
Rulings of the Tax Commissioner