Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Conditional sale
Topic
Taxability of Persons and Transactions
Date Issued
01-27-1997
January 27, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in reply to your letter in which you seek correction of the department's sales and use tax assessment issued to your client,***** (the "Taxpayer"), for the period April 1990 through August 1994. You appeal the determination set forth in my response of February 28, 1996, (P.D. 96-11). I apologize for the delay in our response.
FACTS
The Taxpayer entered into a number of transactions, participating in the transactions as a lessor pursuant to standard lease agreements. The agreements clearly identified the Taxpayer as the owner of the property. At some time prior to the audit period, the Taxpayer was advised by its accountant that the Internal Revenue Service (IRS) would question the treatment of the lease agreements as lease transactions, and would treat them as conditional sales contracts instead. On the accountant's advice, the Taxpayer switched its method of handling the arrangements from a lease agreement to a financing agreement transferring title to a third party purchaser, while retaining a security interest in the property.
You maintain that the Taxpayer's transactions are sales, regardless of the agreement's wording, and should be treated accordingly for purposes of the sales and use tax.
DETERMINATION
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 the term "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 ...." This same section also provides that the term "Lease or Rental" "means the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without transfer of the title to such property."
As stated in the department's prior determination, the federal income tax treatment of a particular series of transactions is not determinative of their classification for sales and use tax purposes. The department's longstanding policy is that the underlying document governs the treatment of the transaction for sales and use tax purposes. In the Taxpayer's case, the agreements clearly reflect that they are lease agreements. The Taxpayer and the customer are referred to as the lessor and lessee, and the agreement clearly shows that title to the equipment remains with the lessor. As the documents in question are documents for the lease of tangible personal property, for a consideration, l do not find sufficient cause for a correction of the assessment. I note that the Taxpayer has not provided any documentation to alter the department's position. Additionally, l have enclosed a copy of P.D. 93-169 (7/29/93), which further supports the department's position.
Accordingly, the balance of the department's assessment remains due and payable. Please return your client's payment of tax, penalty and interest totaling to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 45 days. If payment is not received within that time, interest will accrue on the balance due. If you should have any additional questions regarding this matter, please contact **************** of the department's Office of Tax Policy at *******
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11047Q
Rulings of the Tax Commissioner