Tax Type
Retail Sales and Use Tax
Description
Documentation to support its claims not provided
Topic
Exemptions
Records/Returns/Payments
Taxable Transactions
Date Issued
07-03-2013
July 3, 2013
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This reply is in response to your letter in which you request correction of the retail sales and use tax assessments issued to ***** (the "Taxpayer") for periods from March 2008 through March 2011. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a specialty retailer that sells products from vending machines and kiosks. During the Department's audit, the auditor examined the Taxpayer's Chart of Accounts and noted a line item for the cost of vending machines and kiosk rentals. The Taxpayer did not provide supporting documentation regarding these transactions. Therefore, the auditor assessed the Taxpayer use tax on the payments it made to the vendors of the vending machines and kiosks. The Taxpayer contends its payments to the vendors of the vending machines are for exempt services in accordance with Title 23 of the Virginia Administrative Code (VAC) 10-210-4040. The Taxpayer also contends that the sales tax is included in its kiosk payments.
DETERMINATION
Virginia Code § 58.1-604 imposes the Virginia use tax on the use or consumption of tangible personal property in this Commonwealth. The use tax is imposed on the cost price of each item or article of tangible personal property used or consumed in the Commonwealth.
Vending Machines
In its appeal, the Taxpayer contends that its payments to the vending machine vendors are for customized and specific services and not the rental of tangible personal property. The Taxpayer states that the nature of the transactions and the day-to-day operation of the vending machines by the vendor support its contentions.
Title 23 VAC 10-210-4040 provides that charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with the sale of tangible personal property are taxable. As explained in subsection D, the "true object" test is used to determine the taxability of these transactions.
Subsection D goes on to state that:
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- In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. 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 the charge for any services provided, is taxable.
During the audit and this appeal, the Taxpayer was asked to provide documentation to support its claim that it purchased exempt services when making payments for the vending machines. The Taxpayer has failed to provide any information to substantiate its claim. Because the Taxpayer has not presented documentation to support its position that the true object of its transactions is the purchase of exempt services, I find the payments were correctly assessed and there is no basis to adjust the audit.
Kiosks
The Taxpayer presents agreements with the vendors of the kiosks to evidence the inclusion of sales tax in its payments. However, the agreements are not for the same vendors or transactions assessed in the audit. Although the Taxpayer was informed of the discrepancy by a member of my staff, it has not presented the appropriate agreements to support the claim that the sales tax was included in or applied to its payments for the kiosks. As such, the payments were correctly assessed and there is no basis for adjustment.
CONCLUSION
Based on the comments of the auditor and my staff, the Taxpayer has not provided the necessary and appropriate documentation to support its claims that the tax has been erroneously assessed in, this case. The Department has a longstanding policy of strictly construing exemptions against the taxpayer. Exemption from sales and use taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption. See Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973). Moreover, Virginia Code § 58.1-205, provides that any assessment of a tax by the Department shall be deemed prima facie correct. Therefore, it is the Taxpayer's responsibility to prove that the assessment is incorrect. The Taxpayer has not done so in this case.
Based on the foregoing, the assessments are correct as issued. The Taxpayer will receive updated bills with interest accrued to date. The bills should be paid within 30 days from the bill date to avoid additional interest charges. The Taxpayer should remit its payment to Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *****, Post Office Box 27203, Richmond, Virginia 23261-7203. If payment is not received within 30 days of the bill date, collection action will begin.
The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Law, Rulings and Decisions section of the Department's website. If you have any questions about this determination, you may contact ***** at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5112574843.J
Rulings of the Tax Commissioner