Rulings of the Tax Commissioner

May 6, 2016

Re:      Request for Ruling:  Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you request a ruling on the application of the retail sales and use tax to a lease contract that includes the provision of staffing services.

FACTS

***** (the "Taxpayer") is a nonprofit organization.  The Taxpayer has contracted with ***** (the "Vendor") for the lease of two copy/print/scan machines and to receive on-site staffing services.  The Vendor charges sales tax on both the leased equipment and the staffing services.  The Taxpayer contends that the staffing services are nontaxable.

RULING

A review of the documentation submitted indicates that the Vendor has entered into a lease agreement with the Taxpayer to furnish copying/printing/scanning equipment and personnel that provide training, servicing and management for such equipment.  A documentation fee is also charged.  I understand that the Taxpayer's personnel may use such equipment but the Vendor's personnel may also use the equipment when needed to produce copies and printed materials for printing projects of the Taxpayer.

Generally, the retail sales and use tax applies to the sales price of tangible personal property, as well as to the charges for leasing tangible personal property.  The term "sales price" is defined by Va. Code § 58.1-602 as "the total amount for which tangible personal property or services are sold, including any services that are part of the sale . . . ." [Emphasis added.]  Thus, any services that are part of the sale[1] are subject to taxation unless such services are specifically exempted by statute.

There is no statutory exemption for the services in question when furnished in connection with the sale, lease or rental of tangible personal property.  Based on the foregoing principles, it appears that there is a direct connection between the lease of the equipment and the provision of services.  Accordingly, I must conclude that the services in question are part of the sale and thus subject to taxation in accordance with the statutory provisions cited above.

Notwithstanding the foregoing, I understand that the Taxpayer has provided evidence that the Department issued a nonprofit exemption certificate letter to the Taxpayer with an effective date of June 3, 2015.  A review of the letter certificate indicates that the Taxpayer qualifies for exemption from the Virginia retail sales and use tax on its purchases of tangible personal property beginning on and after the effective date of the certificate.  This exemption certificate was issued in accordance with Va. Code § 58.1-609.11, and is also applicable to the Taxpayer's leases or rentals of tangible personal property, as well as to any services that are part of a purchase, lease or rental of tangible personal property.  While the Taxpayer's purchases, leases and rentals of tangible personal property currently qualify for exemption from the retail sales and use tax, such exemption was not in effect and thus not applicable to any purchases, leases or rentals (including services provided as a part of such purchase, lease or rental) prior to the effective date of the exemption certificate.

I trust that the above has responded to your inquiry.  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 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 Department's Office of Tax Policy, Appeals and Rulings, at *****

Sincerely,

Craig M. Burns
Tax Commissioner

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AR/1-6155775503.R