Tax Type
Retail Sales and Use Tax
Description
Services; Miscellaneous service enterprises; Security monitoring services
Topic
Taxability of Persons and Transactions
Date Issued
11-08-1996
November 8, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear*********
This will reply to your letter in which you seek a ruling on the application of Virginia sales and use tax to the business activities of ****** (the "Taxpayer"). I apologize for the delay in responding to your request.
FACTS
The Taxpayer manufactures and sells personal security and tracking devices for use in motor vehicles. The devices are sold through a network of distributors that install the devices in customers' motor vehicles. The distributors have customers complete a sales contract for monitoring services which is forwarded to the Taxpayer. The Taxpayer provides the monitoring services and debits the customers' credit card accounts or bills the customers for the monitoring service. It should be noted that the security device can only be used with the Taxpayer's monitoring service. If a customer's vehicle is stolen or the customer presses a panic switch, the Taxpayer's monitoring station is alerted and the Taxpayer notifies the appropriate police department and the customer.
The Taxpayer seeks a ruling on Virginia's tax treatment of the security monitoring services and other services the Taxpayer may offer such as unlocking customers' doors, giving directions, trip planning services, and vehicle location services.
RULING
Virginia Regulation (VR) 630-10-17.1 (copy enclosed) provides guidance for the sales and use tax treatment of security systems and defines "monitored systems" to mean "... burglar, security and fire alarm systems which are furnished, installed and monitored under contract with the person furnishing and installing such systems. Systems which are monitored by a person other than the person who furnishes and installs such systems ... are not 'monitored systems' as the term is used in this regulation." (Emphasis added). Section A(2) of this regulation states with respect to non-monitored systems, that "[p]ersons engaged in the sale or lease and installation of burglar, security or fire alarm systems are engaged in making retail sales, the total charge for which is subject to the tax. Separately stated installation charges are not subject to the tax."
Based on the above, the Taxpayer's distributors will be liable for the collection of sales tax on the sale of the security devices. The Taxpayer's charge for monitoring services will be exempt from the tax. If the Taxpayer uses or consumes tangible personal property in Virginia to provide its monitoring services, sales tax should be paid on the property at the time of purchase, or use tax accrued and paid on the property if sales tax was not paid at the time of purchase.
The Taxpayer states that it may provide other services on a cost-per-usage basis such as trip planning, locating lost vehicles, unlocking customer's doors, and giving directions. Such services would also be exempt personal services and the Taxpayer would be deemed the consumer of any tangible personal property used in Virginia to provide the services. I have enclosed a copy of our use tax regulation, VR 630-10-109.
The Taxpayer also questions the proper tax treatment of selling a security device to a Virginia customer if the device is ordered and shipped from its home office in Texas. If the device is sold as part of a monitored security contract, the property transferred to the Virginia customer is considered incidental to the Taxpayer's provision of monitoring services and would not be considered a retail sale. As discussed above, the Taxpayer would be liable for use tax on the security device or any other tangible personal property transferred to the Virginia customer in such a transaction.
This ruling is based on the information provided in the Taxpayer's letter and any changes in the facts presented may alter this ruling. If you need further assistance, please contact ********* in the Office of Tax Policy at********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11178S
Rulings of the Tax Commissioner