09-62 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Taxpayer provides on-site field service to its construction equipment customers

Topic

Collection of Tax

Exemptions

Motor Vehicle Repair Labor and Severice

Date Issued

05-13-2009

May 13, 2009

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you seek correction of the retail sales and use tax assessments issued to ***** (the "Taxpayer") for the period September 2003 through August 2006. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer sells and leases construction equipment and also services the equipment. Due to the size of the equipment and the expense of moving the equipment, the Taxpayer provides on-site field service to its customers. As a result of the Department's audit, assessments were made for certain untaxed fees included on customer invoices. The fees include mileage or zone charges and tire disposal fees included on customer invoices. The Taxpayer maintains that the untaxed items are exempt pursuant to Public Document (P.D.) 96-88 (5/14/96).

DETERMINATION

Mileage Charge/Zone Charge

Virginia Code § 58.1-609.5 3 provides an exemption for separately stated transportation charges. Title 23 of the Virginia Administrative Code 10-210-6000 B defines "transportation charges" as charges for delivery from the seller to the purchaser.

Although separately stated charges for the transportation or delivery of goods sold at retail to customers is exempt from the tax, mileage and zone charges and employee travel expenses incurred for the purpose of on-site service and repair of tangible personal property are not deemed a part of exempt transportation charges (i.e., the cost of shipping goods to customers).

Virginia Code § 58.1-609.5 2 exempts from the retail sales and use tax an amount separately charged for labor or services rendered in installing, applying, remodeling or repairing property sold.

Employee travel and accommodation expenses are not deemed part of repair labor charges, as such employee costs are incurred prior to, in preparation of, or after the actual repair labor process. For this reason, and because there is no statutory provision to exempt reimbursable charges for mileage and employee travel and accommodation expenses, such charges are taxable, whether separately stated or not.

Virginia Code § 58.1-602 defines "sales price" as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . without deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, loses or any other expenses whatsoever.

In P.D. 96-88, the Tax Commissioner determined that charges for employee travel and accommodation expenses are exempt from the retail sales and use tax if the purpose of the trip is merely to provide exempt services to customers on-site. However, the Tax Commissioner concluded, if the purpose of the trip is for on-site installation of tangible personal property sold to a customer, all of the reimbursable costs incurred for an employee's travel and accommodations are considered part of the selling price of the tangible personal property. In this instance, the Taxpayer performs on-site repairs on customer equipment. The Taxpayer charges for the repair parts, separately stating the mileage and road service charges. Because the actual repair services are not provided until after the Taxpayer arrives at the job site and cease when the Taxpayer departs from the job site, such travel expenses do not constitute exempt services rendered by repairmen. Rather, such expenses constitute "other expenses" that must be included in the taxable sales price of tangible personal property. This policy is consistent with P.D. 96-88 and 08-67 (5/22/08). Accordingly, I find that the auditor properly included mileage and road service charges in the assessment.

Tire Disposal Fee

Virginia Tax Bulletin 94-10 (12/1/94) explains the Department's policy with respect to charges for the disposal of tires. When a disposal fee is charged in connection with the sale of tangible personal property, the charge is subject to the sales and use tax. Virginia Tax Bulletin 94-10 explains the basis for this policy is the definition of "sales price" in Va. Code § 58.1-602 cited above. This policy is also applied in P.D. 04-166 (10/1/04), P.D. 01-158 (10/19/01) and P.D. 94-241 (8/10/94).

Additionally, the Taxpayer contends the fees offset the costs associated with the provision of the repair services, and that the taxation of the fees would be double taxation. I disagree. The maintenance and repair of the Taxpayer's vehicles used to provide the repair services is a separate and distinct transaction from the Taxpayer's assessment of a fee to its customer for the disposal of used or worn tires and other maintenance and repair activities conducted for the customer.

CONCLUSION

Based on the foregoing, the assessments are correct as issued. I note the assessments have been paid in full. Based on this determination, the Taxpayer is not entitled to a refund.

The Code of Virginia sections, regulation and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/1-1198094437.T

Rulings of the Tax Commissioner