Tax Type
Retail Sales and Use Tax
Description
Services-miscellaneous service enterprises; Contract for services.
Topic
Taxability of Persons and Transactions
Date Issued
05-29-1998
May 29, 1998
Dear*********
This is in response to your letter of March 18, 1998, in which you seek correction of a sales and use tax assessment issued to a division of ***** (the Taxpayer') for the period April 1994 through March 1997.
FACTS
The Taxpayer, a manufacturer of measurement instruments for science and industry, was audited and held liable for the tax on various purchases of tangible personal property. The only contested transaction is a payment made by the Taxpayer to ***** (the ``Institution') in connection with a research project.
The Taxpayer entered into an agreement with the Institution whereby the Institution proposed to develop a specialized low voltage emitter for use as an electron source. More specifically, the research project called for the development of a new process for the production of such low voltage emitters. From time to time throughout the research process, the Institution delivered samples of emitters to the
Taxpayer. These samples were delivered for evaluation and testing purposes.
To provide financing for the research project, the Taxpayer paid a specified sum to the Institution through payments made in accordance with the research agreement. You maintain that these payments are for the purchase of nontaxable services.
In addition to the contested payments, you maintain that no valid assessment has been made to the Taxpayer because the Notice of Assessment was issued to a corporation that no longer exists.
DETERMINATION
Research Agreement
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 provides that charges for services are generally exempt from sales and use taxation. Further, transactions involving both the sale of tangible personal property and the provision of services are generally fully taxable or fully exempt based on the true object of the transaction. As set out in 23 VAC 10-210-4040(D), if the true object of a transaction is to secure a service, and the property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service.
I find that the true object of the agreement between the Taxpayer and the Institution is for research services. It is clear that the Taxpayer received some tangible personal property=samples of experimental emitters. These samples, however, are not critical to the research efforts provided by the Institution. Accordingly, the contested transaction will be removed from the assessment. A revised assessment, as shown on the enclosed calculations, will be issued to the Taxpayer.
Proper Taxpayer
You indicate that the corporation named on the assessment (***** ) no longer exists and was acquired by the Taxpayer 30 years ago. Accordingly, you maintain that no valid assessment has yet been made. While I do not dispute this information, I can find no indication that the department was notified that the current name on the department's records is not the Taxpayer's correct name. ***** opened a sales and use tax registration in September 1966, and that registration remains active. Sales and use tax returns have been filed continually since 1966 and these returns continue to show ***** as the name of the taxpayer.
I also note that the entity which you refer to as ***** was registered with the department for sales and use taxes beginning September 1966. Sales and use tax returns were regularly filed by this entity from 1966 through June 1991 at which time the registration was ended. The physical address shown on the department's records for ***** was the same as for *****. Our records continue to show as the entity at that physical address.
I agree that the department and the Taxpayer need to clarify this situation and update the department's records. The department's Office of Customer Services will contact the Taxpayer as soon as practicable to begin this process. At the same time, however, I do not agree that the assessment is invalid. The assessment was issued to the Taxpayer under its last known name and address as shown on the department's records.
Summary
Based on this determination, the assessment will be revised to remove the contested research agreement transaction. A revised assessment, with interest accrued to date, will be issued to the Taxpayer. No additional interest will accrue provided the assessment is paid within 30 days. The department will also contact the Taxpayer and begin the process of updating its records and registrations to reflect the Taxpayer's current name.
If you have any questions regarding this letter, please contact ***** in the department's Office of Tax Policy at *****.
Dear*********
This is in response to your letter of March 18, 1998, in which you seek correction of a sales and use tax assessment issued to a division of ***** (the Taxpayer') for the period April 1994 through March 1997.
FACTS
The Taxpayer, a manufacturer of measurement instruments for science and industry, was audited and held liable for the tax on various purchases of tangible personal property. The only contested transaction is a payment made by the Taxpayer to ***** (the ``Institution') in connection with a research project.
The Taxpayer entered into an agreement with the Institution whereby the Institution proposed to develop a specialized low voltage emitter for use as an electron source. More specifically, the research project called for the development of a new process for the production of such low voltage emitters. From time to time throughout the research process, the Institution delivered samples of emitters to the
Taxpayer. These samples were delivered for evaluation and testing purposes.
To provide financing for the research project, the Taxpayer paid a specified sum to the Institution through payments made in accordance with the research agreement. You maintain that these payments are for the purchase of nontaxable services.
In addition to the contested payments, you maintain that no valid assessment has been made to the Taxpayer because the Notice of Assessment was issued to a corporation that no longer exists.
DETERMINATION
Research Agreement
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 provides that charges for services are generally exempt from sales and use taxation. Further, transactions involving both the sale of tangible personal property and the provision of services are generally fully taxable or fully exempt based on the true object of the transaction. As set out in 23 VAC 10-210-4040(D), if the true object of a transaction is to secure a service, and the property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service.
I find that the true object of the agreement between the Taxpayer and the Institution is for research services. It is clear that the Taxpayer received some tangible personal property=samples of experimental emitters. These samples, however, are not critical to the research efforts provided by the Institution. Accordingly, the contested transaction will be removed from the assessment. A revised assessment, as shown on the enclosed calculations, will be issued to the Taxpayer.
Proper Taxpayer
You indicate that the corporation named on the assessment (***** ) no longer exists and was acquired by the Taxpayer 30 years ago. Accordingly, you maintain that no valid assessment has yet been made. While I do not dispute this information, I can find no indication that the department was notified that the current name on the department's records is not the Taxpayer's correct name. ***** opened a sales and use tax registration in September 1966, and that registration remains active. Sales and use tax returns have been filed continually since 1966 and these returns continue to show ***** as the name of the taxpayer.
I also note that the entity which you refer to as ***** was registered with the department for sales and use taxes beginning September 1966. Sales and use tax returns were regularly filed by this entity from 1966 through June 1991 at which time the registration was ended. The physical address shown on the department's records for ***** was the same as for *****. Our records continue to show as the entity at that physical address.
I agree that the department and the Taxpayer need to clarify this situation and update the department's records. The department's Office of Customer Services will contact the Taxpayer as soon as practicable to begin this process. At the same time, however, I do not agree that the assessment is invalid. The assessment was issued to the Taxpayer under its last known name and address as shown on the department's records.
Summary
Based on this determination, the assessment will be revised to remove the contested research agreement transaction. A revised assessment, with interest accrued to date, will be issued to the Taxpayer. No additional interest will accrue provided the assessment is paid within 30 days. The department will also contact the Taxpayer and begin the process of updating its records and registrations to reflect the Taxpayer's current name.
If you have any questions regarding this letter, please contact ***** in the department's Office of Tax Policy at *****.
Rulings of the Tax Commissioner