Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Rental of traffic signal
Topic
Taxability of Persons and Transactions
Date Issued
06-27-1996
June 27, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This is in response to your letter of October 28, 1994, seeking correction of the use tax assessment issued to ********(the Taxpayer). I apologize for the length of time it has taken to reply to your letter.
FACTS
The Taxpayer operates as an excavating contractor. An audit for the period April 1991 through August 1994 resulted in a tax assessment for failure to report and pay the use tax on certain untaxed purchases.
The only issues concern the tax assessed on the rental charges for a mobile office and a traffic control signal. The Taxpayer maintains that the mobile office trailer would have been subject to the motor vehicle sales and use tax administered by the Department of Motor Vehicles (DMV) at the time of purchase by the lessor and therefore concludes that the rental charges should not be subject to the retail sales and use tax. The Taxpayer also maintains that the traffic control signal was furnished and installed under an exempt services contract.
DETERMINATION
Mobile OfFice Rentals: Prior to January 1, 1987, DMV considered mobile offices to fall within the definition of "motor vehicle" found in Code of Virginia § 58.1-2401 and imposed the motor vehicle sales and use tax on mobile office rentals. Effective on and after January 1, 1987, the above cited statute was amended to exclude mobile offices from the definition of "motor vehicle" and to impose a two percent motor vehicle sales and use tax on the sales price of each mobile office sold in Virginia. As a result, the tax levied by DMV on rentals of "motor vehicles" no longer applies to rentals of mobile offices.
Accordingly, the sale, lease or rental of a mobile office is not subject to the 4.5% retail sales and use tax administered by the Department of Taxation, provided the 2% motor vehicle sales and use tax imposed on the sale of a mobile office has been paid to DMV by the owner. In this case, a member of my staff contacted DMV to find out whether the owner/renter paid the motor vehicle sales and use tax on the purchase price of the mobile office at issue. DMV informs us that the certificate of title for such mobile office shows that the renter did not pay the motor vehicle sales and use tax on the purchase price. Since such tax has not been paid, the monthly charges for the mobile office rental are subject to the retail sales and use tax. Accordingly, the use tax assessed on the mobile office in this audit is proper.
For future rentals of mobile offices, the Taxpayer should request proof from the renter that the 2% motor vehicle sales and use tax has been paid on the purchase price of the mobile office. The Taxpayer should then retain such proof with the records of the transaction for at least 3 years beyond the closing date of the rental. If the 2% motor vehicle sales and use tax has been paid, the rental charges will not be subject to the retail sales and use tax. If the 2% motor vehicle sales and use tax has not been paid by the renter on the purchase price, the rental charges will be subject to the retail sales and use tax. If the tax is not charged and collected by the renter, the Taxpayer must report and pay the 4.5% use tax to the Department of Taxation.
Traffic Control Signal: You maintain that the charges for the traffic control signal represent the purchase of an exempt service. To determine whether a particular transaction constitutes an exempt service or a taxable retail sale, the true object of the transaction must be examined. Virginia Regulation (VR) 630-10-97.1 provides that:
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- 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, including services provided, will be taxable.
I would note that the invoice uses such terms as "equipment rental invoice," "rental of equipment" and "rental per month." It is also my understanding that no operator was needed as the traffic control signal was self operating. In addition, the signal was installed temporarily and thus remained tangible personal property after installation. As such, the transaction cannot be considered an exempt real property installation contract.
The department has consistently held that the tax applies to leases or rentals of machinery or equipment which is leased or rented without an operator. See VR 630-10-57(A), copy enclosed. Based on all of the foregoing, it is apparent that the traffic control signal is the critical element of the transaction. As such, the true object of the transaction is for the taxable rental of tangible personal property.
To preclude further interest charges, payment of **** should be sent to the Department of Taxation, Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880, within the next 30 days.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8681R
Rulings of the Tax Commissioner