Tax Type
Retail Sales and Use Tax
Description
Identification cards
Topic
Property Subject to Tax
Date Issued
12-18-1998
December 18, 1998
Re: Sec. 58.1-1821 Application and Ruling Request: Retail Sales and Use Tax
Dear *****
This is in response to your letter seeking correction of the retail sales and use tax assessment issued to ***** (the Taxpayer) for the period September 1994 through June 1997. This will also respond to a subsequent ruling requested on the personal identifications offered by the Taxpayer.
FACTS
The Taxpayer is engaged in producing and selling personal identifications for children and others. An audit resulted in the assessment of sales tax on untaxed sales of personal identifications and use tax on certain purchases.
The Taxpayer takes exception to the sales tax assessed on charges for the personal identifications and maintains that these transactions constitute exempt child registration services. For each order made by a parent, the Taxpayer will weigh, measure, photograph and fingerprint the child and furnish an identification card containing the weight, height, photo, thumbprint and other identifying information.
DETERMINATION
When determining whether a transaction involving both the sale of tangible personal property and the provision of a service represents a sale of tangible personal property or an exempt service, the ``true object' test is used. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D) states that ``[i]f 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.'
In this case, the services provided by the Taxpayer facilitate the production of a product, i.e., the identification card. Although the Taxpayer gathers accurate information on each child, I find that the true object of the transaction is for the customer to obtain the identification card. I also find that the Taxpayer's transactions are unlike the transactions addressed in Public Document (P.D.) 89-170 (5/22/89, copy enclosed). In that ruling, the customers registered their children by completing and mailing personal data cards and fingerprints of their children to a child registration service, which stored the information for release to police if ever needed. In the instant case, however, the Taxpayer has not obligated itself to store, maintain and release data on behalf of its customers as the taxpayer in P.D. 89-170 has done.
It is also worth noting that the application of the tax to the Taxpayer's identification cards is similar to the taxation of pictures and portraits. Title 23 VAC 10-210-2050 sets out that the tax applies to sales of photographs, portraits, and prints. This regulation explains that the tax applies to the total charge to the customer for a photograph, slide, etc., including, but not limited to, charges for labor, photocomposition, setting design, photography time, and any other components of the charge, regardless of whether such components are separately stated.
Based on the foregoing, I find that the tax has been correctly applied to the total amount charged for the Taxpayer's identification cards (including related labor and service charges). Accordingly, the assessment is proper as issued and should be paid in accordance with the terms of the offer in compromise issued to you on March 26, 1998.
If you should have any questions about this determination, please contact of my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/15966R
Re: Sec. 58.1-1821 Application and Ruling Request: Retail Sales and Use Tax
Dear *****
This is in response to your letter seeking correction of the retail sales and use tax assessment issued to ***** (the Taxpayer) for the period September 1994 through June 1997. This will also respond to a subsequent ruling requested on the personal identifications offered by the Taxpayer.
FACTS
The Taxpayer is engaged in producing and selling personal identifications for children and others. An audit resulted in the assessment of sales tax on untaxed sales of personal identifications and use tax on certain purchases.
The Taxpayer takes exception to the sales tax assessed on charges for the personal identifications and maintains that these transactions constitute exempt child registration services. For each order made by a parent, the Taxpayer will weigh, measure, photograph and fingerprint the child and furnish an identification card containing the weight, height, photo, thumbprint and other identifying information.
DETERMINATION
When determining whether a transaction involving both the sale of tangible personal property and the provision of a service represents a sale of tangible personal property or an exempt service, the ``true object' test is used. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D) states that ``[i]f 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.'
In this case, the services provided by the Taxpayer facilitate the production of a product, i.e., the identification card. Although the Taxpayer gathers accurate information on each child, I find that the true object of the transaction is for the customer to obtain the identification card. I also find that the Taxpayer's transactions are unlike the transactions addressed in Public Document (P.D.) 89-170 (5/22/89, copy enclosed). In that ruling, the customers registered their children by completing and mailing personal data cards and fingerprints of their children to a child registration service, which stored the information for release to police if ever needed. In the instant case, however, the Taxpayer has not obligated itself to store, maintain and release data on behalf of its customers as the taxpayer in P.D. 89-170 has done.
It is also worth noting that the application of the tax to the Taxpayer's identification cards is similar to the taxation of pictures and portraits. Title 23 VAC 10-210-2050 sets out that the tax applies to sales of photographs, portraits, and prints. This regulation explains that the tax applies to the total charge to the customer for a photograph, slide, etc., including, but not limited to, charges for labor, photocomposition, setting design, photography time, and any other components of the charge, regardless of whether such components are separately stated.
Based on the foregoing, I find that the tax has been correctly applied to the total amount charged for the Taxpayer's identification cards (including related labor and service charges). Accordingly, the assessment is proper as issued and should be paid in accordance with the terms of the offer in compromise issued to you on March 26, 1998.
If you should have any questions about this determination, please contact of my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/15966R
Rulings of the Tax Commissioner