August 22, 2018
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 May 2012 through March 2015.
FACTS
The Taxpayer is in the business of offering death care services and merchandise in addition to operating funeral homes and cemeteries in Virginia and other states. As a result of the Department’s audit, the Taxpayer was assessed tax on transactions involving a vendor that rented tents, tables, and chairs to the Taxpayer for use in providing its services. The Taxpayer contends the invoices in question should not be included in taxable purchases as they should be treated as rentals with an “operator” and the object of the transaction is the service the vendor provides.
DETERMINATION
Virginia Code § 58.1-603 imposes the sales tax on the lease or rental of tangible personal property in the Commonwealth. The tax is computed on the gross proceeds derived from such lease or rental.
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 addresses the application of the tax to service transactions and states, "Charges for services generally are exempt from the sales and use tax. However, services provided in connection with sales of tangible personal property are taxable." The regulation describes the "true object" test used in determining whether a transaction involving both the rendition of services and the provision of tangible personal property constitutes an exempt service or a taxable retail sale. The “true object” test states:
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.
In Public Documents (P.D.) 04-194 (10/29/04) and 06-87 (9/19/06), the taxpayers rented inflatable amusement games such as moonwalks, slides, and obstacle courses. The taxpayers contended operators were provided and, thus, contested the assessment of tax on the rental of these amusement games. The person provided with the rental of the amusement games was deemed an attendant monitoring the operation and use of the games. For this reason, the true object of the transaction was determined to be the rental of tangible personal property as the attendant did not utilize specific skills required to maintain safety and control over the games.
When the vendor rents its tents, tables, and chairs to the Taxpayer, the "operator" is more accurately an attendant who primarily monitors the set up, break down, and transportation of these items. In applying the "true object" test, the object of the transaction is the rental of the tents, chairs, and tables rather than the skills of the attendant. After reviewing the audit report and the facts presented, the auditor's conclusion that the rentals at issue are taxable is correct.
This specific rental of tangible personal property with an attendant is quite different from other instances in which the Tax Commissioner has determined that the rental of equipment with an operator constitutes a nontaxable service. One such instance is addressed in P.D. 91-19 (2/21/91), where the Department determined a crane rented with an operator is considered a nontaxable service because the "true object" of the transaction is to obtain the operator's skills in using the crane. The operator requires certain skills and maintains complete control over the crane during its operation. The decision in the public document is consistent with Title 23 VAC 10-210-4040 D 2 which deems equipment rentals with operators as exempt (a nontaxable service).
The vendor, in this case, merely provides attendants to transport, set up, and break down the tangible personal property rented by the Taxpayer without any continual operation. These items are placed on the Taxpayer’s property for use by the Taxpayer and its customers and a skilled operator is not required.
CONCLUSION
Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill. Please remit payment to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *****, Post Office Box 27203, Richmond, Virginia 23261-7203.
The Code of Virginia sections and regulation cited, along with other reference documents, 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 determination, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1582L