Tax Type
Retail Sales and Use Tax
Description
Services; Miscellaneous service enterprises
Topic
Taxability of Persons and Transactions
Date Issued
09-17-1997
September 17, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This is in response to your letter of July 12, 1997 in which you seek correction of two sales and use tax assessments issued to ***** (the "Taxpayer") primarily for the period July 1995 through March 1997.
FACTS
The Taxpayer sells, in a single transaction, satellite television equipment and satellite television programming. For a package price, customers purchase the equipment (including a satellite dish and converter), installation and hook-ups, and typically one year of satellite television programming. The programming is provided by satellite TV providers with the Taxpayer as an intermediary. During the contract period, customers look to the Taxpayer for resolution of problems with respect to both equipment and programming services. At the end of the year, customers who wish to continue receiving the television programming deal directly with and are billed directly by the satellite provider. In any event, the equipment remains the property of the customer.
The issue in this case is the application of the tax to the Taxpayer's activities, including purchases and sales of equipment, sales of extended warranties on that equipment, and the sale of satellite television programming.
DETERMINATION
Taxpayer's Sales: Transactions which involve both the sale of tangible personal property and the provision of services are generally either taxable or exempt on the full amount charged. The key issue in this case is determining whether the contested transaction, in which the customer receives both television equipment and television programming, is essentially the taxable sale of tangible personal property or the provision of a nontaxable service. In this regard, the department relies on the "true object test" set out in Title 23 Virginia Administrative Code (VAC), Section 10-210-040. This document indicates that:
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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 the charge for any services provided, is taxable.
Prior determinations issued by the Tax Commissioner indicate that the provision of television programming is a nontaxable service. Further, Public Documents 97-47 (2/7/97) and 87-208 (9/15/87) address the rentals of equipment to subscribers by providers of television programming. The Tax Commissioner determined that the true object of the customers was to obtain the television programming services rather than the tangible property accompanying the service.
Accordingly, the Taxpayer in the instant case is deemed to be a service provider when it sells equipment in connection with satellite television programming. As such, the Taxpayer is not required to charge or collect the tax on such sales. Conversely, if equipment is sold, leased, or rented without the provision of television services, such sales are taxable.
Taxpayer's Purchase of Equipment: As the provider of a nontaxable service, the Taxpayer is subject to the tax on tangible personal property used or consumed in providing its service. This would apply to the satellite dishes, converter boxes, and remote control units provided to Virginia customers, and to any other tangible personal property (including installation supplies) used or consumed in Virginia by the Taxpayer.
Taxes Erroneously Collected: I understand that the Taxpayer may have erroneously collected tax from some of its customers on the contested transactions. Pursuant to 23 VAC 10-210-340(C), such erroneously collected taxes must be remitted to the department unless the Taxpayer can show that the tax was refunded or credited to the customers.
Maintenance Agreements: The Taxpayer also sells parts and labor maintenance agreements on the telecommunications equipment. Provided that the equipment is sold in connection with the provision of television services, the sales of the maintenance agreements are not taxable. This is because the maintenance agreement is part of the nontaxable service sold by the Taxpayer. Again, the Taxpayer is subject to the tax on purchases of all tangible personal property, including repair and replacement parts, used to maintain the equipment.
Summary: The audits will be returned to the audit staff to be revised in accordance with this determination. Because the Taxpayer is subject to the tax on its purchases of equipment used to provide television programming services, the auditor may need to arrange a meeting so that the Taxpayer's purchase records can be reviewed. Subsequently, the assessments will revised as warranted and revised bills will be sent to the Taxpayer. In the meantime, please contact **** in my Office of Tax Policy at ****** if you have any questions about this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12811I
Rulings of the Tax Commissioner