Tax Type
Retail Sales and Use Tax
Description
Resales; Juice and dispensing equipment
Topic
Taxability of Persons and Transactions
Date Issued
11-15-1996
November 15, 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") for the period January 1993 through October 1995. apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates as a food and industrial supply distributor to restaurants, convenience stores, and other businesses. As part of its operations, the Taxpayer entered into an arrangement with a juice vendor to distribute juice products to its customers and also provide juice dispenser machines. The Taxpayer installs and services the dispenser machines. The Taxpayer is invoiced by the vendor for the juice product, freight, and equipment rental. The Taxpayer invoices its customers for the juice product and asserts that the charge includes the costs of freight and equipment rental. The auditor assessed tax on the separately stated equipment rental charges invoiced to the Taxpayer by the juice vendor based on P.D. 92-146(8/19192).
The Taxpayer protests the tax on the basis that the equipment rental charges are included in the product costs charged to its customers and any tax due is ultimately collected on retail sales of the juice products. In addition, the Taxpayer raises the fact that past audits did not reveal that tax was due on the equipment rental charges. Lastly, the Taxpayer believes the auditor assumed that the equipment rental charges were attributable to Virginia activity only and no adjustment was made to the audit liability to reflect the usage of equipment outside Virginia.
DETERMINATION
Public Document (P.D.) 92-146 dealt with a coffee/beverage service company that provided coffee brewing/drink dispensing equipment to its customers. The Tax Commissioner determined that the dispensing equipment was loaned to customers and the taxpayer in the ruling was deemed the actual user and consumer of the equipment and therefore subject to the tax on the cost of the equipment.
The same rationale applies in this instance. The Taxpayer rents the dispenser equipment from the juice vendor which is evidenced by the separate line item on the invoice from the vendor to the Taxpayer. The equipment is then provided to the Taxpayer's customers for use in dispensing the juice products. The Taxpayer does not separately state an equipment rental charge on its invoice to its customer. Upon rental from the vendor, the Taxpayer does not offer the equipment for resale or rental to its customers, but instead, provides the equipment in conjunction with the sale of the juice product. The Taxpayer is deemed the user and consumer of the dispenser equipment and subject to the tax on the equipment rental charges.
The Taxpayer also takes issue with the fact that the equipment rental charges were not taxed in prior audits. According to the audit work papers, the equipment rental charges were not charged to a separate equipment expense account until the Taxpayer's fiscal year 1995. Prior to that time, the Taxpayer included the equipment rental charges in its product costs account. Because the equipment rental charges were included in that account and unknown to prior auditors, the issue was not previously addressed.
In regard to equipment usage outside Virginia, the auditor based the assessment on the available records which provided no indication of equipment usage outside Virginia. In addition, the Taxpayer did not raise the issue during the audit and has not provided additional documentation since the closure of the audit to address the issue.
Virginia Regulation (VR) provides that penalty will not be applied to audit deficiencies occurring in new areas not covered by prior audits. In this instance, the penalty applied to the equipment rental portion of the audit liability will be removed.
In accordance with the determination in this letter, the assessment will be adjusted to reflect the removal of the penalty. The Taxpayer will receive an updated bill for the remainder of the assessment including interest accrued through the date of the Taxpayer's letter of protest. If you have any questions, you may contact********** at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10903J
Rulings of the Tax Commissioner