Tax Type
Retail Sales and Use Tax
Description
Services; Miscellaneous service enterprises; Locksmiths
Topic
Taxability of Persons and Transactions
Date Issued
03-30-1998
March 30, 1998
Dear*************
This will reply to your letter in which you seek correction of sales and use tax assessments issued to ***** (the "Taxpayer'), for the period June 1994 through May 1997.
FACTS
The Taxpayer is a locksmith that was audited by the department and assessed sales tax on travel or trip charges made in connection with the sale of keys. The Taxpayer maintains that the trip charges are an exempt service.
DETERMINATION
Since 1977, the department has treated the sale of keys and duplicates as a sale of tangible personal property which is subject to sales tax. While a considerable amount of service is involved in fitting a key to a lock, the object sought by the customer is the finished key produced by the service and not the service itself. For this reason, the department has consistently held that charges for time, travel, and similar services made in connection with the sale of a key are subject to the tax, regardless that the charges for the services are separately stated.
The 1992 General Assembly clarified the application of the sales tax to locksmiths by requiring that they be treated as retailers. Locksmiths making retail sales of tangible personal property must collect sales tax based on the sales price of the property sold. The term "sales price' is defined in the enclosed copy of Title 23 of the Virginia Administrative Code (VAC) 10-210-4000 as "the total amount for which tangible personal property or taxable services are sold and includes any services in connection with such sale. . . No deduction in the computation of sales price is allowed for the cost of the property sold, the cost of materials used, labor or service costs, losses or any other items of expense.'
The Taxpayer's locksmith services include driving to locations to assist customers who have locked themselves out of their car or house. The Taxpayer unlocks the customer's door and often makes a key and sells it to the customer at the job site. The Taxpayer makes a separate charge for the key and the "trip charge' for traveling to the site. The audit sample of sales conducted by the auditor revealed that the Taxpayer was not collecting tax on the trip charges. Because the trip charges were considered part of the sales price of the keys, the trip charges were held taxable in the audit.
The Taxpayer claims that trip charges were not identified as an issue in a previous audit conducted by the department. It is not known how the Taxpayer's operations were represented to the auditor in the first audit or if the records reviewed by the auditor contained trip charges. The Taxpayer also maintains that the department's policy with respect to trip charges is not applied consistently. The Taxpayer identifies a specific auditor that it feels treated another locksmith differently in an audit. However, it is my understanding that the business operations of the other locksmith in this case were different from those of the Taxpayer.
While I am sympathetic with the Taxpayer, the auditor's assessment is correct. It is consistent with the department's longstanding policy on the application of the sales and use tax to locksmiths. I note that you request a meeting to discuss the issues raised in your letter. Since the department's policy with respect to the trip charge issue is well established, I do not feel a conference is needed at this time.
I note that the Taxpayer has paid both audit assessments in full. If the Taxpayer has any questions or still desires a meeting to discuss the issues raised in its appeal, please contact ***** at *****.
Dear*************
This will reply to your letter in which you seek correction of sales and use tax assessments issued to ***** (the "Taxpayer'), for the period June 1994 through May 1997.
FACTS
The Taxpayer is a locksmith that was audited by the department and assessed sales tax on travel or trip charges made in connection with the sale of keys. The Taxpayer maintains that the trip charges are an exempt service.
DETERMINATION
Since 1977, the department has treated the sale of keys and duplicates as a sale of tangible personal property which is subject to sales tax. While a considerable amount of service is involved in fitting a key to a lock, the object sought by the customer is the finished key produced by the service and not the service itself. For this reason, the department has consistently held that charges for time, travel, and similar services made in connection with the sale of a key are subject to the tax, regardless that the charges for the services are separately stated.
The 1992 General Assembly clarified the application of the sales tax to locksmiths by requiring that they be treated as retailers. Locksmiths making retail sales of tangible personal property must collect sales tax based on the sales price of the property sold. The term "sales price' is defined in the enclosed copy of Title 23 of the Virginia Administrative Code (VAC) 10-210-4000 as "the total amount for which tangible personal property or taxable services are sold and includes any services in connection with such sale. . . No deduction in the computation of sales price is allowed for the cost of the property sold, the cost of materials used, labor or service costs, losses or any other items of expense.'
The Taxpayer's locksmith services include driving to locations to assist customers who have locked themselves out of their car or house. The Taxpayer unlocks the customer's door and often makes a key and sells it to the customer at the job site. The Taxpayer makes a separate charge for the key and the "trip charge' for traveling to the site. The audit sample of sales conducted by the auditor revealed that the Taxpayer was not collecting tax on the trip charges. Because the trip charges were considered part of the sales price of the keys, the trip charges were held taxable in the audit.
The Taxpayer claims that trip charges were not identified as an issue in a previous audit conducted by the department. It is not known how the Taxpayer's operations were represented to the auditor in the first audit or if the records reviewed by the auditor contained trip charges. The Taxpayer also maintains that the department's policy with respect to trip charges is not applied consistently. The Taxpayer identifies a specific auditor that it feels treated another locksmith differently in an audit. However, it is my understanding that the business operations of the other locksmith in this case were different from those of the Taxpayer.
While I am sympathetic with the Taxpayer, the auditor's assessment is correct. It is consistent with the department's longstanding policy on the application of the sales and use tax to locksmiths. I note that you request a meeting to discuss the issues raised in your letter. Since the department's policy with respect to the trip charge issue is well established, I do not feel a conference is needed at this time.
I note that the Taxpayer has paid both audit assessments in full. If the Taxpayer has any questions or still desires a meeting to discuss the issues raised in its appeal, please contact ***** at *****.
Rulings of the Tax Commissioner