October 3, 2024
RE: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to letters submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessments issued for the period December 2018 through November 2021. I apologize for the delay in responding to your request.
FACTS
The Taxpayer sells home furnishings in Virginia and throughout the United States. In Virginia, the Taxpayer operated 12 retail stores. In addition, the Taxpayer sells furniture to Virginia customers through an online platform. As a service to its customers, the Taxpayer offers delivery of the furnishings it sells. A lump sum fee was invoiced for delivery and installation for which sales or use tax was not charged.
Under audit, the combined delivery and installation charges were listed as exceptions because they were a taxable part of the sales price of the furniture. The auditor also assessed the use tax on untaxed purchases. As a result, the Department issued an assessment for sales and use tax and interest. The Taxpayer filed an application for correction contending that the sales tax assessed on the delivery and installation fees are non-taxable services.
DETERMINATION
Virginia Code § 58.1-602 provides the definition of “sales price” as it relates to the retail sales and use tax and provides, in part, the following:
“Sales price” means the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
Virginia Code § 58.1-609.5 sets out exemptions from the sales and use tax in subsections 2 and 3 for “an amount separately stated for labor or services rendered in installing…property sold or rented” and “transportation charges” respectively.
The Taxpayer asserts that the separately stated charge for delivery is tax exempt although it’s combined with another service. In this instance, the issue is whether the Taxpayer’s lump sum invoicing of the delivery and installation charges qualify for the statutory exemptions, or if such charges should be considered as assembly or set-up charges and thus taxable.
Assembly v. Installation Charges
In conjunction with delivery, the Taxpayer will assemble and place furniture in a customer’s home. The Taxpayer contends that placing furniture in a customer’s home and making it ready for use is installation included in the delivery charge.
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 C 2 provides that separately stated installation charges are excluded from sales price and, therefore, are not subject to the tax. In Public Document (P.D.) 86-186 (9/18/1986), the Department opined that installation is labor rendered after the product is complete in order to install it for the customer. In P.D. 94-351 (11/22/1994), the Department made a distinction between taxable assembly labor and exempt installation labor. In this ruling, the assembly and erection of storage racks occurred prior to installation and were, therefore, included in the sales price subject to tax. Based on this reasoning, charges for assembling tangible personal property sold are not part of installation and, therefore, are not excluded from the sales price. Instead, assembly and fabrication charges are for services in connection with the sale and are subject to tax.
To support its claim that the charges should be tax exempt, the Taxpayer references two public documents, P.D. 86-186, which separated installation labor from taxable services, and P.D. 98-12 (1/20/1998), which contrasts assembly fees and installation charges. In each of these cases, at least a portion of the services provided were indicative of installation charges. Contrarily, the facts presented here indicate the charges were for assembly in order to make the property fully functional rather then installation. Absent a statutory exemption, assembly charges included in the sale of tangible personal property are subject to the tax.
Lump Sum Charge
The Taxpayer argues that two tax exempt charges combined are still tax exempt even if not separately stated on an invoice. Based on this argument, the Taxpayer claims that their delivery should be treated as non-taxable delivery and installation services.
Title 23 VAC 10-210-6000 A states, in part:
The tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to tax.
When a dealer does not segregate a nontaxable charge from a taxable charge, the single combined charge is taxable even if separately stated from the price for the tangible personal property. See P.D. 91-223 (9/23/1991).
In Shelor Motor Co. v. Miller, 261 Va. 473, 479 (2001), the Court stated, "[w]hen the language of a statute is plain and unambiguous, we are bound by the plain meaning of that language." Based on the plain language of the exemption statute, for charges to be exempt they must be separately stated.
Title 23 VAC 10-210-4040 A sets out the Department’s policy with respect to the retail sales tax application to services as follows:
Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.
Transactions involving both the sale of tangible personal property and the provision of services are generally either taxable or exempt on the full amount charged regardless of whether the charges for the service and property components are separately stated. Applying these principles to the Taxpayer’s transactions, the single charge for delivery and assembly constitutes services provided in connection with the sale of home furnishings and are taxable as part of the sales price.
Accordingly, the auditor properly assessed the sales tax on the combined charges at issue and the assessments are upheld. Because the disputed assessments have been paid in full, no further action is required.
The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4552.F