Tax Type
Retail Sales and Use Tax
Description
Services; Repair and installation; Maintenance contracts
Topic
Taxability of Persons and Transactions
Date Issued
12-12-1996
December 12, 1996
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This will reply to your letter in which you seek correction of an assessment issued to ***************(the "Taxpayer") for the period October 1991 through December 1994. I apologize for the delay in responding to you.
FACTS
The Taxpayer was audited and assessed use tax on charges for a maintenance contract on equipment used by the Taxpayer. The Taxpayer maintains that the maintenance agreement provides for the furnishing of labor only because the contract states that the vendor retains title to replacement parts furnished under the contract. Since title to the property does not transfer to the Taxpayer, you feel a sale does not take place to trigger the application of sales and use tax to the maintenance contract.
DETERMINATION
Code of Virginia §58.1-602 (copy enclosed) defines a "sale" as " any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property.... A transaction whereby the possession of property is transferred but the seller retains title as security for the payment of the price shall be deemed a sale."
The maintenance contract furnished by the Taxpayer states that the vendor "agrees to provide parts and labor for service and maintenance in accordance with this Agreement ..." The department's longstanding policy with respect to maintenance agreements is reflected in Virginia Regulation (VR) 630-10-62.1 (copy enclosed). Paragraph D of the regulation states that "[m]aintenance contracts, the terms of which provide both repair or replacement parts and repair labor, represent a sale of tangible personal property. The total charge for such contracts is subject to the tax ....
Based on the language in the contract provided by the Taxpayer, the maintenance agreement is taxable because it provides for labor and parts. While the contract states that title to the repair parts provided by the vendor does not transfer to the Taxpayer, possession of the property clearly transfers to the Taxpayer. The transfer of possession of tangible personal property from the vendor to the Taxpayer for a consideration constitutes a "sale" as defined by the statute cited above. The auditor properly held the maintenance agreement charges taxable in the audit.
On January 1,1996, an exemption for one-half of the total charge for maintenance contracts calling for the provision of both parts and labor went into effect. I have enclosed Tax Bulletin 95-8 which explains this legislative change. Code of Virginia §58.1-105 (copy enclosed) allows the Tax Commissioner to compromise doubtful or disputed claims for taxes or liabilities of doubtful collectibility. The information provided by the Taxpayer indicates that there is no basis to settle this case through an offer in compromise.
You may send payment for the outstanding balance of **** to*********** in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. Due to the time taken to reply to your appeal, l will waive the accrual of further interest on your account if payment is received by the department within sixty days. If you have any questions, please contact ********** at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner