Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal
Topic
Taxability of Persons and Transactions
Date Issued
09-20-1996
September 20, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your letter of February 7, 1996 in which you seek correction of a sales and use tax assessment issued to ************* (the "Taxpayer").
FACTS
The Taxpayer operates as a motor vehicle carrier of property. An audit for the period February 1992 through January 1995 resulted in an assessment primarily for the Taxpayer's untaxed purchases of fixed assets and recurring purchases. The Taxpayer protests the bulk of the assessment and maintains that it operates as a common carrier entitled to the exemption under Code of Virginia § 58.1-609.3(3). In addition, the Taxpayer questions the assessment relating to other issues, including: (1) tangible personal property purchased for use outside of Virginia; (2) a copying contract which the Taxpayer maintains is the purchase of an exempt personal service; and (3) the assessment of tax twice on the same transaction.
DETERMINATION
Common Carrier Exemption
Code of Virginia § 58.1-609.3(3) exempts from the tax:
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- Tangible personal property sold or leased to a public service corporation engaged in business as a common carrier of property or passengers by motor vehicle or railway, for use or consumption by such common carrier directly in the rendition of its public service.
Virginia Regulation (VR) 630-10-24.3 further addresses this exemption and states that "a common carrier must be authorized to operate under a certificate of convenience and necessity issued by ... the Interstate Commerce Commission in order to qualify for this exemption. This regulation applies only to common carriers of property by motor vehicle, including restricted common carriers, and has no application to contract or other carriers."
The Taxpayer indicates that it holds a certificate of convenience and necessity issued by the Interstate Commerce Commission and that it exclusively engages in business as a common carrier. I understand, however, that the Taxpayer operates in a dual capacity both as a common carrier and a contract carrier. In this regard, the exemption can only apply to tangible personal property used in the Taxpayer's common carrier activity. Tangible personal property used to provide contract carriage is taxable. Several prior determinations which clearly set forth this policy are enclosed.
In those instances when tangible personal property is used to provide both exempt common carriage and taxable carriage outside of the carrier's common carrier authority, VR 630-10-24.3(C) indicates that the tax due may be prorated. This proration is based on the percentage of time the property is used in a taxable activity and the percentage of time the property is used in an exempt activity. The department has previously determined that the percentage of time may be calculated by using revenue derived or miles traveled in exempt common carriage versus taxable operations during the audit period.
I understand that the records necessary to distinguish taxable from exempt activities in this case were not made available at the time of the audit. Accordingly, the assessment was made based on the best available information pursuant to Code of Virginia § 58.1-618. Estimated assessments made under this statute are deemed to be prima facie correct. Nevertheless, I will allow the Taxpayer an opportunity to provide additional books and records which will enable the auditors to make an assessment in accordance with the information noted above. Once these records are made available, and an allocation of taxable and exempt usage is determined, the assessment can be revised accordingly.
Other Issues
First Use: I understand that the Taxpayer purchased tangible personal property in Virginia, took possession of that property in Virginia, then transported that property in its own vehicles to the Taxpayer's locations in other states. You indicate that this property was purchased for use in these other states.
In this regard, Code of Virginia § 58.1-602 defines the term "sale" to mean "any transfer of title or possession, or both, ... of tangible personal property...." That same statute indicates that storage of tangible personal property in Virginia - to which the use tax applies - means "any keeping or retention of tangible personal property for use, consumption or distribution in this Commonwealth, or for any purpose other than sale at retail in the normal course of business." (Emphasis added).
Further, the Virginia Supreme Court decision in Commonwealth v. Pounding Mill Quarry, 215 Va. 647 (1975) established the principle that if a taxable event occurs in Virginia, subsequent delivery of the property outside of Virginia does not exempt the property from the tax. The court held that since both sales and delivery (possession) occurred in Virginia, the sales tax was properly imposed even though the purchaser intended to immediately transport the property to another state and use it there. I am concerned that the Taxpayer's purchases in the instant case are analogous to those in Pounding Mill in that the Taxpayer has taken title and possession of property in Virginia. Based on the limited information currently before me, it therefore appears that these transactions were correctly assessed.
Further, it does not appear that credits for taxes paid to other states are applicable. Such credits, authorized under § 58.1-611, apply to a taxpayer's "use in this Commonwealth of tangible personal property purchased by him in another state." From what I understand, the contested property in the instant case was purchased by the Taxpayer in Virginia. Accordingly, first use of that property was in Virginia, and it may be that any taxes paid to other states on that property have been erroneously paid.
Copying Services: Code of Virginia § 58.1-609.5(1) provides an exemption from the tax for "professional, insurance, or personal service transactions...." Conversely, and as addressed in VR 630-10-65.3, sales of copies are deemed to be the taxable sales of tangible personal property. The assessed copying transactions are listed on the vendor's invoices as "billable copies." Based on those invoices, the tax was properly assessed. I will review any additional information you can provide which substantiates your claim that these transactions represent the purchase of some nontaxable service.
Duplicated Transactions: The assessment will of course be corrected for any items which were erroneously assessed twice. The Taxpayer, however, will need to identify those specific items.
Summary
The auditors will immediately contact the Taxpayer to schedule a suitable time to examine all the necessary records and documents pertaining to the issues raised in your protest. Upon such review, the assessment will be revised as warranted. Further, I will certainly address any unresolved issues following this re-examination.
Please contact ***** in my Office of Tax Policy at ***** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10938I
Rulings of the Tax Commissioner