Tax Type
Retail Sales and Use Tax
Description
Interstate transactions; Film projectors purchased out-of-state
Topic
Taxability of Persons and Transactions
Date Issued
05-31-1996
May 31, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This is in response to your correspondence seeking correction of a sales and use tax audit assessment on behalf of ***** (the Taxpayer).
FACTS
The Taxpayer is a video staging, projection and production company providing audio-visual services for entertainment events. An audit for the period October 1990 through July 1993 resulted in an assessment of sales and use tax on untaxed purchases of projectors, other fixed assets, and various supply items.
Based on the facts presented, it is my understanding that the Taxpayer maintains that the projectors assessed in the audit are not subject to the tax since they were acquired by the Taxpayer outside Virginia and were brought into Virginia at a later date for use only as parts. The Taxpayer also maintains that it rents equipment, rather than provides a service, when it sends its staff to an event to operate equipment provided by the Taxpayer. According to the auditor, the Taxpayer purchased its equipment exempt of the tax under a resale certificate of exemption.
DETERMINATION
Service v. Rental: Virginia Regulation 630-10-57(A), copy enclosed, sets out the department's general policy on leases and rentals. This regulation states that the tax generally applies to leases or rentals of tangible personal property without operators, i.e., a true lease or rental of tangible personal property is deemed to occur when no operator is furnished under the transaction. On the other hand, a lease with an operator is considered a nontaxable service transaction. See PD's 89-139 (4/28/89) and 96-48 (4/15/96), copies enclosed.
Accordingly, whenever the Taxpayer sends its staff to an event to operate equipment provided by the Taxpayer, the Taxpayer is providing services, the charge for which is nontaxable. As a service provider, the Taxpayer is liable for the tax on all of its purchases of tangible personal property used or consumed in the performance of such services.
In those instances in which the Taxpayer rents or leases equipment without an operator, the charge to the customer is subject to the tax. Equipment which is used solely for rental or lease purposes may be purchased exempt of the tax.
Projectors: Since the projectors at issue were brought into Virginia for use or storage in Virginia, they are subject to the use tax either on their cost price or fair market value, depending on when they were first brought into Virginia. Although the Taxpayer disputes the tax assessed on the projectors, Code of Virginia § 58.1-205 places the burden of proof upon the Taxpayer to show that the tax assessed on the cost price of the projectors is improper. As such, the assessment is deemed correct unless convincing evidence establishes otherwise.
It is my understanding that the purchase invoices reviewed by the auditor show that the projectors were delivered by the suppliers directly to the Taxpayer in Virginia. In such instances, there is no doubt that the Virginia retail sales and use tax applies to the cost Price of the projectors.
The information presented by the Taxpayer to date is not sufficient to allow revision of the assessment. For instance, the information does not indicate whether any of the touring events in which the projectors were used came into Virginia, nor does it indicate that the items were returned to the Delaware warehouse after each entertainment event, rather than to the Taxpayer's Virginia location where the projector operators are located. It is also unclear as to whether the information furnished has any connection to the projectors picked up in the audit; i.e., the auditor assessed tax on Sony projectors, but the Taxpayer only mentions General Electric projectors.
Notwithstanding the foregoing, if the Taxpayer can show that any of the projectors at issue were delivered to the Taxpayer at its Delaware warehouse and were first brought into Virginia six months or more after acquisition, the audit will be revised to change the assessment of tax from the cost price of the projectors to the fair market value at the time such items were first brought into Virginia.
In order to revise the assessment, the Taxpayer needs to provide copies of the actual invoices furnished by its suppliers showing that initial delivery of the projectors was directly to the Taxpayer at its ******location. If the invoice does not show a***** location as the point of delivery, the Taxpayer may provide some other convincing evidence (e.g., bills of lading, shipping records, etc.) furnished by the supplier or shipper which clearly shows that the initial delivery of the property was to the Taxpayer's******warehouse. To establish that such projectors were first brought into Virginia six months or more after purchase, the Taxpayer needs to provide evidence, such as a log or record maintained by the Taxpayer.
An auditor from the department's ****** District Office will contact you soon to schedule a meeting to review the Taxpayer's invoices and other records of the items at issue. If such documents clearly establish that the items were first shipped to the Taxpayer outside of Virginia and were first brought into Virginia six months or more after acquisition, the audit will be revised as set forth above and a revised assessment will be sent to the Taxpayer. If such documentation does not clearly establish that an adjustment to the assessment is in order, the assessment with interest updated to the present will be sent to the Taxpayer.
If you have any questions concerning this response, please contact****** at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8880R
Rulings of the Tax Commissioner