Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal; Engineering services
Topic
Taxability of Persons and Transactions
Date Issued
09-30-1996
September 30, 1996
Re: § 58.1-1821 Application: Retail Sales & Use Tax
Dear**************
The will reply to your letter in which you seek correction of a sales and use tax assessment issued to *******(The "Taxpayer") for the period November 1990 through July 1994. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a firm involved in surveying operations and consulting services related to engineering design. The department's audit disclosed that the Taxpayer's plan drawings and specifications ("plans"), were provided to project owners for review. Typically, the project owner, usually a governmental entity, and other interested parties would require design changes at different stages of the review process. In each stage, multiple copies of the revised plans are generated and presented to all interested parties.
The Taxpayer questions the applicability of tax to the original plans, and all subsequent amended copies of the plans, either given to the owner as part of the Taxpayer's contract to provide design services, or sent to plan houses, potential contract awardees, or the final contractor to which the contract has been awarded. The Taxpayer states that in a previous audit the question of taxability of plans was never an issue. If the Taxpayer is required to charge the tax, it requests a consideration of prospective compliance with a delay in implementing the application of tax to such plans.
The Taxpayer also states that it has historically paid tax to the current printer of the plans. Alternatively, the Taxpayer requests that in lieu of requiring it to charge tax on certain sets of plans, that it continue to pay the tax to the printer, and at project's end, the Taxpayer would calculate and remit the tax based on the mark-up of the plans. The Taxpayer states that the auditors computed the mark-up to be an average of 52%.
DETERMINATION
Code of Virginia § 58.1-609.5.1 exempts from the tax "Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made ...." In determining whether a particular transaction involves the sale of tangible personal property or the provision of an exempt service, Virginia follows the "true object" test. Virginia Regulation (VR) 630-10-97.1 provides the following explanation of this test:
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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.
In applying these provisions to the Taxpayer's situation, analysis and design services performed by architects and engineers are not subject to the sales tax even though the end product of the services may be a tangible report, design, or model. Similar services such as legal services, medical services, or word processing services are nontaxable under this statute even though the attorney, the doctor, or the word processor may furnish a report to the individual seeking the services. In each instance, the provision of a singular original letter or report is part of the service provided. Accordingly, tangible personal property used in connection with the development of the original report, plans or blueprints are taxable to the Taxpayer, as it is the user or consumer of the property in providing the service.
As provided in P.D.'s 86-164 (08/04/86), and 91-268 (10/23/91), copies enclosed, however, when editing or reformatting the original document, and multiple copies of the revised documents are sold in conjunction with that revision, the charges for editing and formatting services would be tax exempt, if separately stated, while the charge for the additional copies would be taxable. In contrast, if the Taxpayer merely produces multiple copies of a document that was previously edited or reformatted, the total charge for the copies would be taxable.
The Taxpayer states that it does not print the copies of the original documents, but rather the copies are printed or copied by an unrelated company ("printer"). Since the printer currently charges tax on its printing of the plans, the Taxpayer requests that this arrangement be allowed to continue with the Taxpayer remitting tax on the mark-up of the plans at projects end. Based on the information before me, the Taxpayer's printer produces copies of the original plan, which the Taxpayer sells. Since the Taxpayer is a dealer with respect to the sales of the plans, the Taxpayer may present the printer with a Certificate of Exemption Form ST-10, and purchase the copies exempt of the tax. The Taxpayer is then required to collect the tax on the sales price of the plans to all interested parties. Those purchasers entitled to purchase the plans exempt of the tax may present the Taxpayer with a properly completed Certificate of Exemption Form.
In the event that the Taxpayer gives away copies of the plans, free of charge, to certain clients, individuals, or companies, the Taxpayer will be required to accrue the tax on the cost price of the printed copies given away.
Based on all of the foregoing, I find that the auditors properly included the sales of the copies in the department's audit. While I understand your concern that the initial audit of your company did not include the copies of the plans as taxable sales, I cannot allow for waiver of the department's assessment to allow prospective compliance. Accordingly, the assessment is correct and remains due and payable. In light of the fact that the department's response was inordinately delayed, I will allow for the waiver of all accrued interest.
Please return your payment for the original assessment totaling***** to the department's Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. I will have***** of the Department's Office of Tax Policy contact the Taxpayer's office to discuss the balance of questions related to the dispersal of copies to different customers, and the Taxpayer's responsibility in the collection of the tax.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9317Q
Rulings of the Tax Commissioner