Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Property tax paid by lessee
Topic
Taxability of Persons and Transactions
Date Issued
01-15-1997
January 15, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********:
This will reply to your letter in which you seek correction of the retail sales and use tax audit of (the "Taxpayer") for the period of June 1993 through May 1996.
FACTS
The Taxpayer is in the consulting business. In conducting business, the Taxpayer leases tangible personal property. The audit resulted in an assessment of tax on the personal property taxes paid to the lessor by the Taxpayer. The Taxpayer feels the payment of personal property tax to the lessor is not a "voluntary contribution" as set forth in the definition of "gross proceeds", nor does the Tax Commissioner have the authority to expand the definition of "gross proceeds" in the regulations to include personal property tax.
DETERMINATION
Code of Virginia § 58.1-603.2 imposes the sales tax on "the gross proceeds derived from the lease or rental of tangible personal property." "Gross proceeds" is defined in Code of Virginia § 58.1-602 as "the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services, computed with the same deductions, where applicable, as for sales price as defined in this section over the term of the lease...". As provided above, "gross proceeds" are charges made or voluntary contributions. In the case at hand, section 9 of the lease agreement between the lessor and the Taxpayer states the following:
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- Lessee agrees to pay promptly when due,... all license, title and registration fees, all levies, imposts, duties, charges or withholdings whatsoever, and all sales, use, personal property, stamp and other taxes whatsoever...
Based on the terms of the lease agreement set forth above, the personal property tax paid by the Taxpayer is not only a charge made in connection with the lease of tangible personal property, but the Taxpayer also agrees to voluntarily pay the personal property tax when they become the lessee.
The only amounts excluded from the term "sales price" are those specifically stated in Code of Virginia § 58.1-602 (copy enclosed). The payment of taxes which become the responsibility of the lessee pursuant to a lease agreement are not statutorily excludable from either "sales price" or "gross lease proceeds". The pass-through by the lessor of property taxes on the leased equipment represents the pass-through of an expense incurred by the lessor in connection with the equipment. Since no specific exclusion for "sales price" was included in Code of Virginia § 58.1-602 for taxes, I must conclude that no such exclusion was intended.
In further support of the department's position, Virginia Regulation (VR) 630-10-57 (copy enclosed) provides, in part, that "the term 'gross proceeds' includes any finance or interest charges, insurance charges, charges for personal property tax on property being leased, and other similar charges." (Emphasis added).
Based on all of the above, property tax paid by the lessee is part of the gross proceeds of the lease and is subject to the retail sales and use tax. If you should have any questions, please contact******** , Office of Tax Policy, at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11484K
Rulings of the Tax Commissioner