Tax Type
Retail Sales and Use Tax
Description
Equipment lease; Sales and use tax on the transactions
Topic
Tangible Personal Property
Taxable Transactions
Date Issued
05-10-2013
May 10, 2013
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you seek correction of the retail sales and use tax assessment issued for the period August 2005 through July 2011. I apologize for the delay in responding to your appeal. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates as a construction and excavation business. The Taxpayer contests transactions that were included in the audit assessment. The Taxpayer also submits an offer in compromise based upon doubtful liability and doubtful collectibility. The Taxpayer offers to remit ***** in settlement of the outstanding liability.
DETERMINATION
Contested Assets
The Taxpayer contests the inclusion of a drill listed in the Contested Assets exceptions. The Taxpayer provides a copy of the Equipment Lease Agreement for review and maintains that it leases the drill at issue from its vendor. In calculating its settlement offer, the Taxpayer states that the amount is based upon the lease payments made to the vendor during the audit period. The drill was held taxable in the audit because the drill was being carried on the Taxpayer's depreciation schedule, but no tax was being paid. In the audit, the Taxpayer maintained that it owned the drill and was making loan payments.
Virginia Code § 58.1-603 imposes the sales tax on "the gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business or part of an established business, or the same is incidental or germane to such business."
Virginia Code § 58.1-602 defines sale, in pertinent part, as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration...." [Emphasis added.]
Based upon a review of the documentation provided with the Taxpayer's appeal, the Taxpayer is leasing the drill at issue from its vendor. Accordingly, the audit will be returned to the appropriate field audit staff to adjust the audit to include only those lease payments that occurred during the audit period on which the tax was not paid.
Contested Purchases
The Taxpayer also contests the assessment of tax on tangible personal property that it purchased from a vendor that is owned by the same owner as the Taxpayer. The Taxpayer maintains that both companies are owned 100% by an individual, and the individual incurs the federal and state tax liability for both companies. The Taxpayer maintains that these transactions represent a movement of funds by one owner and are thus not taxable to the Taxpayer.
Virginia Code § 58.1-604 1 imposes the use tax on "the cost price of each item of tangible personal property used or consumed in this Commonwealth."
In this instance, the sales at issue took place between the Taxpayer and a separate legal entity. Based upon the aforementioned authorities, the transactions between these two entities are deemed sales and are subject to the Virginia sales and use tax. The fact that the two entities are owned by the same individual is irrelevant with respect to the application of the retail sales and use tax on the transactions at issue. As provided in Va. Code § 58.1-604 1, use tax is due on the cost price of the equipment at issue because the sales tax was not paid on the transactions as they occurred. Accordingly, the transactions at issue were correctly held taxable in the Department's audit.
Offer in Compromise
In conjunction with its appeal letter, the Taxpayer submits an Offer in Compromise Business Request for Settlement form for review by the Department. The Taxpayer submits the offer based upon doubtful liability and doubtful collectibility. The Taxpayer offers ***** in settlement of the outstanding liability. The Taxpayer states that it is unable to pay the assessment in full, and requests a payment plan with the Department. The Taxpayer also requests a waiver of penalty.
Virginia Code § 58.1-105 authorizes the Tax Commissioner to compromise and settle doubtful or disputed claims for taxes or tax liability of doubtful collectibility. Based upon this determination, the assessment will be adjusted as previously stated with respect to the charges for the drill. The assessment with respect to the contested purchases is upheld as issued. Accordingly, the Taxpayer's offer in compromise based upon doubtful liability cannot be granted. Penalty was not assessed in the audit; therefore, no action is required with respect to the Taxpayer's penalty waiver request.
With respect to the Taxpayer's offer in compromise based upon doubtful collectibility, the financial information provided has been forwarded to the Department's Offer in Compromise team for review. The Offer in Compromise team will be in contact with the Taxpayer following the review of the Taxpayer's settlement proposal. If the proposal for settlement is accepted, a member of the team will contact the Taxpayer to discuss establishing a payment plan based upon the settlement amount offered. If not accepted, a team member will contact the Taxpayer to discuss establishing a payment plan based upon an updated bill reflecting the aforementioned adjustments and interest accrued to date. The team can be reached at (804) 367-8045 should the Taxpayer have any questions. In either scenario, the Taxpayer will have 30 days from the date of its contact with the Offer in Compromise team to establish a payment plan. If the payment plan is not established within the allotted time, the settlement amount or the adjusted bill amount will be immediately due and payable.
The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this response, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5095537352.P
Rulings of the Tax Commissioner