Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Computer equipment
Topic
Taxability of Persons and Transactions
Date Issued
09-05-1996
September 5, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This is in reply to your letter in which you seek correction of sales and use tax assessed to**********(the "Taxpayer"), resulting from an audit for the period February 1988 through November 1993. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates as a law firm and created *******as an asset holding company for the Taxpayer. During the audit period,*******made a variety of equipment purchases from sellers in Virginia. The equipment was subsequently leased by ********to the Taxpayer. The auditor assessed tax on the monthly lease payments paid by the Taxpayer*************to based on Virginia Regulation (VR) 630-10-57.
The Taxpayer protests the tax on the lease payments******** to and asserts that sales tax was paid on the purchase of the equipment by *****and by statute the department is not authorized to apply the tax twice upon the same transactions. Further, the Taxpayer believes that the responsibility for the collection of the sales tax on the equipment purchases by ***********rests with the sellers.
DETERMINATION
Code of Virginia § 58.1-603 imposes the sales tax upon "every person who engages in the business of selling at retail or distributing tangible personal property in this
Commonwealth...or who leases or rents such property within this Commonwealth...." Code of Virginia § 58.1-604(3) provides that "[a] transaction taxed under § 58.1-603 shall not also be taxed under this section, nor shall the same transaction be taxed more than once under either section."
VR 630-10-57 addresses the tax on leases and states that any person engaged in the business of leasing or renting tangible personal property to others is required to register as a dealer and collect and pay the tax on gross proceeds. The regulation goes on to define gross proceeds as the charges made or voluntary contributions received for the lease or rental of tangible personal property.
According to the regulation, ******* was required to register as a dealer and collect the tax on the equipment lease payments received from the Taxpayer. As a dealer, ******* purchase of the equipment for future lease to the Taxpayer qualified as an exempt transaction under the proper resale exemption certificate. See Form ST-10 and P.D.87-63 (2/27/87), copies enclosed. Because ****did not collect sales tax on its leases of tangible personal property, the Taxpayer became liable for the tax under Code of Virginia § 58.1--604, which imposes the use tax upon the use or consumption of tangible personal property in Virginia. The auditor correctly assessed the tax upon the lease payments to *******from the Taxpayer.
In the past, the department has allowed a credit for tax paid on purchases of tangible personal property when such property was ultimately leased or resold and could have been purchased exempt of the tax under the resale exemption. See P.D. 87-63. In this case, the Taxpayer has provided a letter from the seller of the computer system equipment indicating that was charged tax on the purchase of the equipment. As such, this tax will be credited against the Taxpayer's audit liability.
To address the Taxpayer's point concerning the seller's responsibility for collection of the tax, while Code of Virginia § 58.1-612 legally requires dealers to collect and remit the sales tax on all sales or leases of tangible personal property, Code of Virginia § 58.1--625, copy enclosed, makes the tax the legal debt of the purchaser. This has been recognized by the federal courts, which have held that "the legal incidence of the Virginia sales and use tax is on the purchaser." See United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd, 569 F.2d 811 (4th Cir 1978), copy enclosed. As such, the department may proceed against either the seller or the purchaser in instances where the tax has been collected or paid.
The Taxpayer will receive an adjusted bill with interest computed through the date of the letter of protest. Payment should be made within 30 days to avoid the accrual of additional interest charges. If you have questions concerning this matter, you may contact ********at ********
Sincerely
Danny M. Payne
Tax Commissioner
OTP/8650J
Rulings of the Tax Commissioner