Tax Type
Retail Sales and Use Tax
Description
Computers, services, and software; Recovery service
Topic
Taxability of Persons and Transactions
Date Issued
06-02-1997
June 2. 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear***********
This will reply to your letter in which you seek a ruling on the application of Virginia sales and use tax to sales made as an independent representative for*************. I will refer to you as the "Taxpayer" in the discussion that follows.
FACTS
The Taxpayer represents a global recovery service that maintains a database of personal possessions, the respective owners of the possessions, and personal information about the owners. Labels or tags, which identify the owner of a particular item and which contain a toll free telephone number to call if an item is found, are attached to valuable items. An identification kit for children may also be purchased. Customers who purchase the service are entitled to register a fixed number of items with the service. Labeled items are registered with the recovery service for a renewable fee which is usually paid annually.
If a registered item is found, the finder of the item can call a toll free phone number to report the found item to the recovery service. The service arranges to pick up the item from the finder and then scans the item in its computer system to determine the owner. The owner is then contacted and arrangements are made for the paid return of the lost item. Found items may also be turned in to one of many scanning stations set up in various locations throughout the world. The item is scanned at the location and the owner is contacted to arrange pickup of the item. The Taxpayer asks if the fees charged for the recovery service are subject to sales and use tax.
RULING
Code of Virginia § 58.1-609.5(1) provides an exemption for “[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made...." When determining whether a transaction involving both the sale of tangible personal property and the provision of a service represents a sale of tangible personal property or an exempt service, the "true object" test is used. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D) (copy enclosed) states "[i]f 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." In this case, the "true object" of the transaction is to secure the service of recovering lost possessions and/or children. The tangible personal property (the labels) transferred to customers is an incidental component of the transaction. Based on the above, the charge for the recovery service is exempt from sales and use tax.
Please note that Paragraph E of this same regulation provides that "a service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services. If a supplier fails to collect the tax from a service provider, the provider shall remit use tax to the department as provided in 23 VAC 10-210-6030.” (Copy enclosed).
I trust the information provided has addressed your concerns. If you have additional questions or desire to register with the department to remit consumer use tax, please contact **** in the Office of Tax Policy at **** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11807S
Rulings of the Tax Commissioner