Document Number
Tax Type
Retail Sales and Use Tax
Lump Sum Charges and Insertion Fees, Body Piercing
Tangible Personal Property
Date Issued

September 21, 2017

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

Dear *****:

This will reply to your letter in which you seek the correction of retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period November 2007 through November 2013.  I apologize for the delay in responding to your appeal.


The Taxpayer is a tattoo and piercing studio that was audited by the Department. The Taxpayer bills customers a lump sum charge for body piercings.  The lump sum charge includes the jewelry, stud or similar hardware that transfers to the customer as part of the body piercing service. The Taxpayer was assessed retail sales tax on the untaxed lump sum charges billed to customers for the body piercing services.  The auditor treated the body piercing charges as taxable sales of services provided in connection with sales of tangible personal property, i.e., the jewelry or other piercing hardware.  The Taxpayer contests the Department's assessment of the body piercing transactions as taxable retail sales.

The Taxpayer also contests the sampling methodology used in the audit to determine the use tax liability and the extension of the audit period from three years to six years.


Body Piercing

The Taxpayer contends that body piercing is a personal service that is exempt from the sales tax pursuant to Va. Code § 58.1-609.5 1. The Taxpayer maintains that the true object of body piercing transactions is to obtain the piercing service rather than the jewelry or hardware that is provided to the customer.  The Taxpayer states that the cost of the jewelry transferred to customers in connection with the piercing services is a minimal part of the overall cost of the transaction.  According to the Taxpayer, the cost of the jewelry ranges from less than 1% to 5% of the total cost of each piercing transaction.

Virginia Code § 58.1-609.5 1 provides an exemption from the sales and use tax for “[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made ....” Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 A states, in part, that “[t]ransactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated.”

A “true object” test is used to evaluate transactions that include both the rendering of a service and the provision of tangible personal property to determine if the transaction is treated as an exempt service or a taxable retail sale. Title 23 VAC 10-­210-4040 D sets out the true object test:

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.


The Taxpayer bills a lump sum charge for piercing services.  Based on the information provided by the Taxpayer, the cost of the jewelry that is used with body piercing services is typically less then 1% of the total charge for the piercing.  In accordance with Title 23 VAC 10-210-4040 D, I find that the true object of the body piercing transactions is the Taxpayer's skill and expertise in performing the piercings. The jewelry or hardware transferred to customers with the piercing services is inconsequential to the transaction and there is no separate charge for the jewelry.  The placement of a sterile piece of jewelry or hardware in the new piercing is necessary to prevent the piercing from closing before it has healed. However, I agree that the object of the piercing transactions is not to obtain the jewelry or hardware.

Based on the cited authorities, lump sum charges for piercing services that include the provision to customers of jewelry or piercing hardware are sales of a personal service and qualify for exemption from the retail sales tax.  As the provider of an exempt personal service, the Taxpayer is considered the user and consumer of all jewelry, piercing hardware, equipment, supplies and products purchased for use in the provision of its services.  The Virginia retail sales tax should be paid on all such purchases.  If the sales or use tax is not charged by a vendor or supplier, the Taxpayer is responsible for reporting and remitting consumer use tax to the Department on the cost price of the untaxed purchases.

Insertion Fees

The Taxpayer's sales records included a category of sales classified as “jewelry” sales. The audit sales sample includes the monthly total of untaxed jewelry sales for each of the 11 months in the sample period.  The jewelry sales were extrapolated over the 6-year audit period and assessed.  The Taxpayer claims that the jewelry sales are actually insertion fees, which are charges to enlarge an existing piercing so that larger guaged jewelry can be placed in the piercing.  It is not clear if the jewelry sales category consists exclusively of insertion fees or if actual sales of jewelry are also included in this sales category.  Since sales of jewelry without the provision of piercing or insertion services are taxable, this issue must be clarified before the audit can be adjusted.

Consistent with the treatment in this determination of body piercing services, the insertion fee transactions qualify as the sale of exempt personal services if the jewelry transferred to the customer is incidental to the overall transaction.  However, since there is some confusion regarding whether the jewelry sales include stand alone sales of jewelry, the Taxpayer must provide documentation to confirm that this sales category only consists of charges for exempt insertion services.  I will allow the Taxpayer 45 days to provide this information to the Department.  The audit will be adjusted based on the Department's review of the information provided.

Extension of Audit Period

The Taxpayer was not registered and did not file tax returns to report a sales or use tax liability for the initial three-year audit period.  In accordance with Va. Code § 58.1-634, the auditor extended the audit period to six years.  The Taxpayer contests the extension of the audit period from three to six years based on the same section of the Code of VirginiaVirginia Code § 58.1-634 states:

The taxes imposed by this chapter shall be assessed within three years from the date on which such taxes became due and payable. In the case  of a false or fraudulent return with intent to evade payment of the taxes  imposed by this chapter, or a failure to file a return, the taxes may be assessed, or a proceeding in court for the collection of such taxes may be  begun without assessment, at any time within six years from such date.  The Tax Commissioner shall not examine any person's records beyond the three-year period of limitations unless he has reasonable evidence of fraud, or reasonable cause to believe that such person was required by law to file a return and failed to do so.  (Emphasis added.)


Based on the provisions of Va. Code § 58.1-634, an assessment of sales and use tax may be made within six years from the due date of a return when reasonable cause exists that a taxpayer was required to file tax returns to report a liability but has not done so. The Department's longstanding policy is to extend a sales and use tax audit to a six-year period if an auditor establishes that a liability exists for the three-year period of the audit.  The finding of a liability in the initial three-year period provides reasonable cause that a taxpayer was required to file returns but failed to do so for the periods outside the three-year audit period.

In this case, the Taxpayer was not registered with the Department to file either retail sales tax or consumer use tax returns.  A liability was found in the initial three-year period of the audit.  The Taxpayer was clearly making taxable retail sales and purchasing property exempt of the tax for taxable use or consumption by the business.  As such, the Taxpayer was required to file tax returns to report the liabilities but failed to do so.  The expansion of the audit period to a six-year period is correct.

Audit Sample

The Taxpayer contests the inclusion in the audit's purchases sample of untaxed ammunition purchases.  The Taxpayer states that the auditor identified eight ammunition purchases made during a one-month period.  The untaxed ammunition purchases were included in the audit sample of expense purchases and extrapolated over the six-year audit period.  The Taxpayer cites Public Document (P.D.) 96-343 (11/21/96) to support the removal of the ammunition purchases from the audit sample.

In P.D. 96-343, the Tax Commissioner agreed to remove certain purchases from the taxpayer's audit sample because the purchases made up a disproportionate amount of the taxable purchases in the sample liability.  The purchases also occurred primarily during the sample period.  The Tax Commissioner agreed to a separate sample of the disputed purchases.  The Taxpayer contends that the ammunition purchases should be removed from the purchase sample because the facts of its case are similar to those in P.D. 96-343.

Sampling is an audit technique of significant value that is widely used in both the public and private sectors.  The Department uses sampling in sales and use tax audits where a detailed audit would not prove beneficial to either the auditor or the taxpayer. When sampling techniques are properly applied, the final results should be within a narrow percentage range of the actual amount that would have been determined by a detailed audit.  When evaluating the validity of an audit sample, the Department will remove an item or items from an audit sample only if it is shown that the transaction is isolated in nature and not a normal part of a taxpayer's business activity.

The Taxpayer maintains that the auditor reviewed years of purchase records to find eight ammunition purchases in a one-month period. The auditor notes that the Taxpayer did not have copies of purchase invoices available for review when the audit began.  The auditor used a six-month sample period to examine the Taxpayer's expense purchase records because the Taxpayer was able to provide purchase invoices for this specific period of time. Based on this information, it does not appear that the auditor was able to review years of records, as the Taxpayer suggests.  The auditor reviewed the limited amount of records that were made available and the Taxpayer's use tax liability was calculated based on that review.

Virginia Code § 58.1-205 states that an assessment of tax by the Department is deemed to be prima facie correct.  The burden of proving that a tax assessment is erroneous is on the Taxpayer.  In this case, the Taxpayer has not met its burden of proving that the inclusion of the ammunition purchases in the sample resulted in an invalid assessment.  The Taxpayer has not demonstrated that the contested transactions are isolated in nature and are not normal purchase transactions for the business.  In addition, the Taxpayer should note that the ammunition purchases listed in the audit occurred over a span of three months and became part of the sample error computation for the six-month sample period.

Further, I do not agree that the ammunition purchases should be removed from the purchases sample based on P.D. 96-343.  The Taxpayer has not provided any evidence that the ammunition purchases make up a disproportionate amount of the taxable purchases in the Taxpayer's sample liability or that the purchases occurred during the sample period only.  Virginia Code § 58.1-633 and Title 23 VAC 10-210-470 require taxpayers to maintain adequate and complete records necessary to determine the proper amount of tax liability.  The records must provide sufficient information to confirm that sales or use taxes were paid when due and that the retail sales tax has been properly charged if taxable sales were made for the period being examined.  Without sufficient purchase records to support the Taxpayer's claim, I am unable to conclude that the facts in this case are similar to those in P.D. 96-343, which would warrant the removal from the audit of the ammunition purchases.

As the Taxpayer has not presented documentary evidence to support its claim that the audit sample is not representative of the purchasing activity that occurred during the audit period, there is no basis to remove the ammunition purchases from the audit sample.


The Taxpayer's audit will be revised to remove the charges for piercing services. The audit will be referred to the appropriate field audit staff for revision.  The Taxpayer should provide the requested documentation for the jewelry sales within 45 days from the date of this letter.  The jewelry sales in the audit will be revised based on the Department's review of the information provided.  After the revision of the audit is complete, the Taxpayer will be issued revised bills if any outstanding assessment balances remain.  The Taxpayer should submit documentation to Virginia Department of Taxation, 600 East Main Street, 15th Floor, Richmond, Virginia 23219, Attention: *****.

The Code of Virginia sections, regulations and public document cited, along with other reference documents, are available on line at in the Laws, Rules and Decisions section of the Department's web site.  If you have any questions concerning this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.



Craig M. Burns
Tax Commissioner





Last Updated 10/03/2017 15:34