Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Allocation of tangible personal property
Topic
Taxability of Persons and Transactions
Date Issued
08-29-1997
August 29, 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 sales and use tax assessed to your client, ***********(the "Taxpayer"), for the period June 1990 through July 1996.
FACTS
The Taxpayer once operated a nursing home and an adult residential facility. During the audit period, the Taxpayer leased the facilities to separate parties. The leases included real and tangible personal property and the Taxpayer failed to collect the tax on the monthly lease payments from each party. The auditor assessed tax on 28% of each monthly lease payment in accordance with Public Document (P.D.) 95-223 (8/29/95).
The Taxpayer opposes the tax on the allocated portion of the monthly lease payments for both leases and provides an alternative basis for computing tax on the tangible personal property portion of the monthly lease payments.
DETERMINATION
The Taxpayer's alternative allocation method calculates the current fair market value of the tangible personal property in question by taking into account allowable depreciation. The Taxpayer's method does not reflect the value of the tangible personal property at the inception of the lease compared to the cost of the real property or any improvements.
In instances such as this, the department applies the method described in P.D. 93-188 (8/26/93). The ruling dealt with leases of nursing home facilities that included land, buildings, furniture and equipment. The method in the ruling compared the basic cost price of the furniture and equipment to the total cost of the project, including real property cost and financing and interest costs. As provided in P.D. 93-188, this allocation method is proper under Generally Accepted Accounting Principles.
In using this method, the department has found that on the average, tangible personal property comprises approximately 28% of the total lease payment. Applying this percentage to the monthly lease payments for each lease in this case is proper, in accordance with P.D. 93-188 and P.D. 95-223, and I find no basis for correction of the assessment.
I have enclosed P.D. 93-188 for your review. The Taxpayer will receive an updated bill including interest computed through the date of the Taxpayer's letter of protest. If you have additional questions, please contact ****** at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11966J
Rulings of the Tax Commissioner