Retail Sales and Use Tax
Miscellaneous service enterprises; Environmental charges
Collection of Delinquent Tax
Re: § 58.1-1821: Application Retail Sales and Use Tax
This is in response to your letter of November 29, 1996 in which you seek correction of sales and use tax assessments issued to *********(the "Taxpayer"). These assessments were generated from audits predominantly for the period January 1995 through September 1996.
The Taxpayer operates a chain of automotive service stations. The only transactions assessed were untaxed environmental charges made by the Taxpayer on customer invoices. These charges are made for the disposal and recycling of environmentally hazardous materials such as anti-freeze and motor oil. You indicate that no tax was charged on the provision of this service to customers because the Taxpayer believed it was providing exempt labor.
You were advised by the auditor that these environmental charges are taxable when they are made in connection with the sale of tangible personal property (e.g., with an oil change or radiator winterizing). You were also told these charges are not taxable when made independent of a sale of property. You point out, however, that the same labor is required in both situations.
The application of the tax to environmental charges, when made in connection with the sale of property, is explained by certain provisions of the Retail Sales and Use Tax Act, as follow:
Code of Virginia § 58.1-603 imposes the sales tax on "the gross sales price of each item or article of tangible personal property when sold at retail or distributed in this Commonwealth." The term "sales price" is further defined in Code of Virginia § 58.1-602 to mean:
- The total amount for which tangible personal property or services are sold, including any services that are a part of the sale ... without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever. (Emphasis added)
When the Taxpayer changes motor oil, and an environmental charge is made to dispose of the old motor oil, the charge is taxable. This is because the environmental charge is "part of the sale" of the motor oil sold to customers. Accordingly, the tax is not triggered by the service itself, but rather by the provision of tangible personal property to customers.
Charges for certain services are not taxable (even when made in connection with the sale of property). These specific services are identified in Code of Virginia § 58.1--609.5. Environmental services, and other services which are not specifically exempted, remain taxable when made in connection with the sale of tangible personal property.
Based on this determination, the audit liability was properly assessed. The outstanding assessments, with interest accrued to date, will be issued to the Taxpayer. No additional interest will accrue provided the assessments are paid within 30 days.
If you have any further questions regarding this issue, please contact *******in my Office of Tax Policy at***************.
Danny M. Payne