Tax Type
Retail Sales and Use Tax
Description
Services; repair and installation; Engineering and installation of security system.
Topic
Taxability of Persons and Transactions
Date Issued
02-13-1998
February 13, 1998
Dear***********:
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer'), for the period April 1993 through March 1996.
FACTS
The Taxpayer was audited by the department and seeks an adjustment to the audit for charges made by two vendors. The Taxpayer maintains that a charge for the relocation and installation of existing manufacturing equipment is exempt because it was not made in connection with the sale of tangible personal property.
The Taxpayer also seeks the removal of charges for engineering and installation services from the audit. The Taxpayer issued a purchase order to a vendor to design, furnish, and install a security access control system. The vendor provided the engineering and installation services called for in the purchase order but, due to a legal dispute, did not sell the actual security system to the Taxpayer. Instead, the Taxpayer purchased the security system from a different vendor. Since the services held in the audit were not provided in connection with the sale of tangible personal property, the Taxpayer feels the engineering services are exempt professional services. In addition, the installation labor is exempt under Code of Virginia § 58.1-609.5(2).
DETERMINATION
Relocation and Installation Charges
Code of Virginia § 58.1-609.5(1) provides a sales and use tax exemption for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made, ...' The Taxpayer maintains that the vendor provided the labor and expertise needed to dismantle, relocate, and reinstall manufacturing equipment and machinery at one of the Taxpayer's facilities. The contract for these services did not provide for the sale or transfer of tangible personal property to the Taxpayer. The Taxpayer has presented additional information which confirms that this transaction was for the provision of services only and that there was no sale of tangible personal property made in connection with the services provided. Therefore, the charge for the services is exempt under Code of Virginia § 58.1-609.5(1) and will be removed from the audit.
Security Access Control System
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(A) (copy enclosed) states that "services provided in connection with sales of tangible personal property are taxable.' The transaction to purchase the security access control system was originally structured as the purchase of a security system along with the engineering services to design the system and the installation labor to install the system. In such a case, the engineering services billed by the vendor would be subject to sales and use tax as a service in connection with the sale of tangible personal property.
However, additional information has been provided by the Taxpayer which shows that the tangible personal property that makes up the actual system was purchased directly from another vendor. This information documents the facts as stated in the Taxpayer's letter. Because the vendor that provided the engineering and installation services did not sell the security system to the Taxpayer, the charges for engineering services and installation are exempt professional services and were improperly held in the audit.
The audit will be adjusted to remove the charges discussed in my determination. Since the Taxpayer has paid the audit assessment in full, the Taxpayer's overpayment with applicable interest will be refunded. If you have any questions, please contact ***** in the Office of Tax Policy at *****.
Dear***********:
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer'), for the period April 1993 through March 1996.
FACTS
The Taxpayer was audited by the department and seeks an adjustment to the audit for charges made by two vendors. The Taxpayer maintains that a charge for the relocation and installation of existing manufacturing equipment is exempt because it was not made in connection with the sale of tangible personal property.
The Taxpayer also seeks the removal of charges for engineering and installation services from the audit. The Taxpayer issued a purchase order to a vendor to design, furnish, and install a security access control system. The vendor provided the engineering and installation services called for in the purchase order but, due to a legal dispute, did not sell the actual security system to the Taxpayer. Instead, the Taxpayer purchased the security system from a different vendor. Since the services held in the audit were not provided in connection with the sale of tangible personal property, the Taxpayer feels the engineering services are exempt professional services. In addition, the installation labor is exempt under Code of Virginia § 58.1-609.5(2).
DETERMINATION
Relocation and Installation Charges
Code of Virginia § 58.1-609.5(1) provides a sales and use tax exemption for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made, ...' The Taxpayer maintains that the vendor provided the labor and expertise needed to dismantle, relocate, and reinstall manufacturing equipment and machinery at one of the Taxpayer's facilities. The contract for these services did not provide for the sale or transfer of tangible personal property to the Taxpayer. The Taxpayer has presented additional information which confirms that this transaction was for the provision of services only and that there was no sale of tangible personal property made in connection with the services provided. Therefore, the charge for the services is exempt under Code of Virginia § 58.1-609.5(1) and will be removed from the audit.
Security Access Control System
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(A) (copy enclosed) states that "services provided in connection with sales of tangible personal property are taxable.' The transaction to purchase the security access control system was originally structured as the purchase of a security system along with the engineering services to design the system and the installation labor to install the system. In such a case, the engineering services billed by the vendor would be subject to sales and use tax as a service in connection with the sale of tangible personal property.
However, additional information has been provided by the Taxpayer which shows that the tangible personal property that makes up the actual system was purchased directly from another vendor. This information documents the facts as stated in the Taxpayer's letter. Because the vendor that provided the engineering and installation services did not sell the security system to the Taxpayer, the charges for engineering services and installation are exempt professional services and were improperly held in the audit.
The audit will be adjusted to remove the charges discussed in my determination. Since the Taxpayer has paid the audit assessment in full, the Taxpayer's overpayment with applicable interest will be refunded. If you have any questions, please contact ***** in the Office of Tax Policy at *****.
Rulings of the Tax Commissioner