Tax Type
Retail Sales and Use Tax
Description
Training manuals; Sales vs. service
Topic
Collection of Delinquent Tax
Date Issued
11-24-1998
November 24, 1998
Re: Sec. 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of a sales and use tax assessment issued to ***** (the Taxpayer) for the period July 1992 through March 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a service corporation that offers one and two day computer training courses to students. The department's audit held taxable the purchase of manuals for use in providing computer training to the Taxpayer's students. The Taxpayer contests the taxation of the manuals and maintains that the language in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 is misleading and allows for an interpretation of the law which would exempt the manuals from sales and use tax. In addition, the Taxpayer requests waiver of assessed interest charges.
DETERMINATION
Services
Code of Virginia Sec. 58.1-609.5(1) provides that the tax shall not apply to ``Professional, insurance, or personal services transactions which involve sales as inconsequential elements for which no separate charges are made....' In determining whether a particular transaction involves the sale of tangible personal property or the provision of an exempt service, Virginia follows the ``true object' test. Title 23 VAC 10-210-4040 provides that:
Section E of 23 VAC 10-210-4040 further provides that ``a service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services. If a supplier fails to collect the tax from a service provider, the provider shall remit use tax to the department as provided in 23 VAC 10-210-6030.'
I cannot agree with the Taxpayer's assertion that the regulation is misleading and allows for an interpretation of the law which would exempt the training manuals. The regulation clearly provides that a service provider is the taxable user and consumer of all tangible personal property for use in providing exempt services. In this case, the true object of the transaction is the training, and the Taxpayer is the user and consumer of the manuals used in providing the service. Accordingly, I find that the purchases of manuals were properly included in the department's audit. This decision is based on longstanding policies of the department, as explained in previously issued rulings. I note that the auditor provided the Taxpayer with a copy of Public Document (P.D.) 86=158 (7/31/86) explaining the department's policy with respect to the taxation of workbooks used in providing services. I have also enclosed copies of previous rulings, P.D. 95-232 (9/13/95) and P.D. 93-232 (12/21/93) relating to the taxation of training materials used in providing services.
Interest
The Taxpayer requests the waiver of interest assessed in the audit. The enclosed copy of Title 23 VAC 10-210-2032(B) addresses the assessment of interest in audits and states that ``[t]he application of interest to all audit deficiencies is mandatory and accrues as set forth in 23 VAC 10-210-2030 C.' While I am sympathetic with the Taxpayer, the assessment of audit interest is required by regulation and no basis has been presented to warrant waiver of the interest.
Summary
Based on the foregoing, I find no basis for correction of the assessment. I note that the Taxpayer has paid the audit assessment in full. If you have any questions regarding this letter, please contact ***** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13706T
Re: Sec. 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of a sales and use tax assessment issued to ***** (the Taxpayer) for the period July 1992 through March 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a service corporation that offers one and two day computer training courses to students. The department's audit held taxable the purchase of manuals for use in providing computer training to the Taxpayer's students. The Taxpayer contests the taxation of the manuals and maintains that the language in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 is misleading and allows for an interpretation of the law which would exempt the manuals from sales and use tax. In addition, the Taxpayer requests waiver of assessed interest charges.
DETERMINATION
Services
Code of Virginia Sec. 58.1-609.5(1) provides that the tax shall not apply to ``Professional, insurance, or personal services transactions which involve sales as inconsequential elements for which no separate charges are made....' In determining whether a particular transaction involves the sale of tangible personal property or the provision of an exempt service, Virginia follows the ``true object' test. Title 23 VAC 10-210-4040 provides that:
-
- 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 services provided, will be taxable.
Section E of 23 VAC 10-210-4040 further provides that ``a service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services. If a supplier fails to collect the tax from a service provider, the provider shall remit use tax to the department as provided in 23 VAC 10-210-6030.'
I cannot agree with the Taxpayer's assertion that the regulation is misleading and allows for an interpretation of the law which would exempt the training manuals. The regulation clearly provides that a service provider is the taxable user and consumer of all tangible personal property for use in providing exempt services. In this case, the true object of the transaction is the training, and the Taxpayer is the user and consumer of the manuals used in providing the service. Accordingly, I find that the purchases of manuals were properly included in the department's audit. This decision is based on longstanding policies of the department, as explained in previously issued rulings. I note that the auditor provided the Taxpayer with a copy of Public Document (P.D.) 86=158 (7/31/86) explaining the department's policy with respect to the taxation of workbooks used in providing services. I have also enclosed copies of previous rulings, P.D. 95-232 (9/13/95) and P.D. 93-232 (12/21/93) relating to the taxation of training materials used in providing services.
Interest
The Taxpayer requests the waiver of interest assessed in the audit. The enclosed copy of Title 23 VAC 10-210-2032(B) addresses the assessment of interest in audits and states that ``[t]he application of interest to all audit deficiencies is mandatory and accrues as set forth in 23 VAC 10-210-2030 C.' While I am sympathetic with the Taxpayer, the assessment of audit interest is required by regulation and no basis has been presented to warrant waiver of the interest.
Summary
Based on the foregoing, I find no basis for correction of the assessment. I note that the Taxpayer has paid the audit assessment in full. If you have any questions regarding this letter, please contact ***** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13706T
Rulings of the Tax Commissioner