Rulings of the Tax Commissioner

September 16, 2016

Re:      Request for Ruling:  Motor Vehicle Rental Tax

Dear *****:

This is in response to your letter in which you request a ruling on the application of the motor vehicle rental tax to employees of ***** (the “University”).

FACTS

The University is a public university in the Commonwealth of Virginia.  Employees of the University rent motor vehicles when traveling on business.  In such instances, the employees are charged a motor vehicle rental tax if payment is made with personal funds. The University indicates that a personal credit card is a valid mechanism for payment under the Commonwealth Accounting Policies and Procedures (CAPP) Manual.  The University contends that its employees should not be liable for the motor vehicle rental tax because it is an agency of the Commonwealth, and the motor vehicle rental tax charge is in conflict with the CAPP Manual.

RULING

The motor vehicle rental tax is imposed by Va. Code § 58.1-1736 on the rental of any motor vehicle in Virginia.  Virginia Code § 58.1-1737.2 sets out an exemption from such tax if the vehicle is “[r]ented by the Commonwealth of Virginia or any political subdivision thereof.”

Pursuant to Article X, § 6 (f), the Constitution of Virginia provides that “[e]xemptions of property from taxation . . . shall be strictly construed.”  As such, the exemption set out in Va. Code § 58.1-1737.2 is subject to strict construction, which means that taxation is the rule, and such statutory tax exemption is strictly construed against the taxpayer with doubt resolved against the exemption.  Carr v. Forst, 249 Va. 66, 453 S.E.2d 274 (1995).

I do not disagree that a personal credit card is a valid mechanism for payment under the policies set out in the CAPP Manual.  I would note, however, that payment via a personal credit card issued to an employee is not payment by the Commonwealth of Virginia.[1]  While an employee may be reimbursed for renting a vehicle for use on state business, the vehicle has not been rented by the Commonwealth of Virginia in such instances.  The exemption statute cited above allows an exemption from the motor vehicle rental tax when the vehicle is rented by the Commonwealth or a political subdivision thereof.  The exemption language does not contain any language extending the exemption to employees of the Commonwealth who rent vehicles for state business purposes and use a personal credit card or cash for payment. Based on the rule of strict construction and pursuant to Va. Code § 58.1-1738, the motor vehicle rental tax on the rental of a motor vehicle must be paid by University employees renting motor vehicles regardless of whether the employees are reimbursed or not.

This ruling is consistent with the policy for reimbursements made by the Commonwealth to state employees for the retail sales and use tax paid by such employees for the purchase of meals, lodgings, etc.  See subsections A and B of Title 23 VAC 10-210-690.

Accordingly, any agreement with a car rental company to waive the motor vehicle rental tax when University employees rent a motor vehicle using a personal credit card or cash is in direct conflict with the law as cited above.

This response is based on the facts provided as summarized above.  Any change in the facts or the introduction of new facts may lead to a different result.  The Code of Virginia sections and the regulation 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 ruling, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6314392234.R