Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal; Electrical services
Topic
Taxability of Persons and Transactions
Date Issued
04-26-1996
April 26, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This will respond to your letter of October 3, 1995, seeking correction of a sales and use tax assessment issued to ******* (the Taxpayer).
FACTS
The Taxpayer is an electrical contractor. An audit for the period July 1992 through June 1995 resulted in an assessment of tax on untaxed purchases of tangible personal property. At issue in this case is the assessment of tax on purchases of electrical and conduit drawings. The auditor determined the true object of these transactions is the purchase of tangible personal property and that the services provided were not critical to the transaction. The Taxpayer maintains that the true object of these transactions is to secure professional services and that the tangible drawings are inconsequential to the services provided.
DETERMINATION
The Taxpayer's argument relies on Virginia Regulation (VR) 630-10-97.1 which provides:
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- In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. 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.
The "true object" sought by the Taxpayer in the present case is the professional skill and ability of an electrical designer to design electrical lighting and power systems and to calculate load requirements for the electrical installations to be performed by the Taxpayer. In addition, the electrical and conduit drawings produced by the electrical designer are of inconsequential importance in comparison to the services provided. Accordingly, I find that the true object sought by the Taxpayer is for professional services rather than the tangible personal property. Accordingly, the audit will be revised to remove these purchases from the audit. I would note, however, that the tax applies to additional copies of such drawings.
Since the assessment has been paid, the Taxpayer will receive a refund of the tax and interest assessed and paid on the contested purchases, plus interest owed on such payment, as soon as practical.
If you have any questions about this letter, please contact***** of my Office of Tax Policy at********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10540R
Rulings of the Tax Commissioner