Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Leaseback for refinancing debt
Topic
Taxability of Persons and Transactions
Date Issued
03-19-1997
March 19, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****************
The department has revised P.D. 96-108 (5/29/96). The changes pertain to the application of the motor vehicle sales and use tax to the transaction at issue. The changes have been made to clarify the application of the tax but do not alter the application of the retail sales and use tax and the aircraft sales and use tax. This ruling replaces the prior ruling. I apologize for any inconvenience this may have caused you.
FACTS
The Taxpayer is a leasing company registered for Virginia retail sales and use tax. The Taxpayer intends to enter into a lease agreement with a customer to refinance the debt associated with certain tangible personal property owned by its customer and located in Virginia. The Taxpayer inquires whether the transaction structured as a sale and subsequent leaseback constitutes a financial agreement exempt from the retail sales and use tax.
The Taxpayer also questions whether the same type transaction relating to motor vehicles and aircraft would also qualify for exemption from the retail sales and use tax.
RULING
Retail sales and use tax
Code of Virginia § 58.1-603 imposes the sales tax on every person who sells or leases or rents tangible personal property in the Commonwealth. Code of Virginia§ 58.1--602 defines sale to mean "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 review of the Master Lease Agreement and the Bill of Sale indicates that the intent of the leaseback transaction is to provide the Taxpayer a security interest in the tangible personal property. Legal title and possession of the property remain with the customer. As such, the questioned transaction does not constitute a sale for retail sales and use tax purposes. Enclosed is a copy of an excerpt from the Virginia Sales and Use Tax Expenditure, Vol. 1, No. 5, which discusses leaseback transactions in more detail.
Motor vehicles
Code of Virginia § 58.1-609.1(2) provides an exemption from the retail sales and use tax for motor vehicles, trailers, semitrailers, mobile homes and travel trailers, provided they are subject to the motor vehicle sales and use tax under Chapter 24 of the Code of Virginia. The tax is administered by the Virginia Department of Motor Vehicles.
In general, this chapter specifies that the motor vehicle sales and use tax shall be collected at the time of titling, except in the case of a rental vehicle. A rental vehicle is defined as one where transfer of possession for a period of less than 12 months has taken place, but where transfer of ownership has not taken place. Rental vehicles are taxed at the rate of four percent of the gross proceeds of that rental, plus an additional four percent if it is a daily rental, with the taxes paid being remitted to the Commissioner of the Department of Motor Vehicles, monthly. Rental vehicles do not pay the motor vehicle sales and use tax upon titling, unless their use ceases to be that of a rental vehicle.
Any transaction that causes a vehicle to be re-titled, would require the payment of the motor vehicle sales and use tax. Based on the proposed sale and leaseback transaction described in this case, the sale transaction is taxable, and the leaseback, if a true operational lease, is not taxable. If the transaction contemplates a conditional sales agreement lease, it would also be taxable.
Aircraft
Code of Virginia § 58.1-609.1(5), copy enclosed, provides an exemption from the retail sales and use tax for aircraft subject to the aircraft sales and use tax (§ 58.1 -1500 et seq., copy enclosed). Code of Virginia § 58.1-1502 imposes the tax upon the sale of aircraft in Virginia at a rate of 2%. Virginia Regulation (VR) 630-11-1501 defines a sale for purposes of imposing the aircraft sales and use tax. Again, the transaction, as it relates to aircraft, does not qualify as a sale because a transfer of possession or ownership does not occur. I am enclosing P.D. 95-120 (5/16/95) which addresses the transfer of an aircraft and the subsequent leaseback of the aircraft between two parties for the purpose of securing payment of a financial obligation. The department determined the transaction to qualify for exemption from the aircraft sales and use tax.
The policy set forth in this ruling is limited to the leaseback transaction discussed. The ruling does not apply to the disposition of the property via other transactions. If you have additional questions concerning the retail sales and use tax, please do not hesitate to contact ***** in the Office of Tax Policy at *************. Questions regarding the application of the motor vehicle sales and use tax should be directed to*********** Commissioner, Department of Motor Vehicles, P.O. Box 27412, Richmond, Virginia 23269-0001.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9639J
Rulings of the Tax Commissioner