February 17, 2025
Re: Request for Ruling: Retail Sales & Use Tax
Dear *****:
This will reply to your letter on behalf of ***** (collectively the “Taxpayer”), requesting a ruling on the sales tax implications to outdoor recreational equipment and service transactions.
This response is based on the facts provided as summarized below. Any change in facts or the introduction of new facts may lead to a different result.
FACTS
The Taxpayer provides access to various outdoor recreational equipment and services. The Taxpayer requests guidance on the proper application of Virginia’s retail sales tax to 1) guided whitewater rafting, 2) guided scenic river tours, 3) guided zipline rides, and 4) unguided river raft, kayak, canoe, or inner tube rentals. The Taxpayer also seeks guidance on how to display the taxable and non-taxable components of a transaction on customer receipts.
RULING
Mixed Service Transactions
Virginia Code § 58.1-603 imposes the sales tax on the gross proceeds derived from the lease or rental of tangible personal property in the Commonwealth. Virginia Code § 58.1-609.5 1 provides an exemption from the tax for “… personal service transactions which involve sales as inconsequential elements for which no separate charges are made.” Transactions involving the rental of tangible personal property and the provision of services are generally subject to Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 A, which provides:
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 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. As explained in subsection D of this section, the “true object” test is used to determine the taxability of these transactions.
The “true object” test first determines the critical element of the transaction. If the object of the transaction is to secure a service and the tangible personal property 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 produced, then the entire charge, including the charge for any services provided, is taxable.
For transactions in which both the services rendered and the property transferred are critical elements, the degree of customization, uniqueness, or specific services provided in connection with the product must be considered in determining their appropriate tax status. Equipment rentals are taxable as specifically enumerated under Title 23 VAC 10-210-4040 D 1, while equipment rentals with operators are deemed exempt pursuant to Title 23 VAC 10-210-4040 D 2.
Attendant verses Operator
Transactions involving both tangible property and services have been further distinguished between those with operators (exempt) and those with attendants (taxable) based on the degree of skill or expertise needed to perform the services. In Public Document (P.D.) 91-19 (2/21/1991), the Department considered the rental of a crane with an operator a non-taxable service because the “true object” of the transaction was to obtain the operator’s skills in using the crane to complete a job. The Department reasoned that the operator exerts certain skills and maintains complete control over the crane during its operation. Conversely, in P.D. 01-56 (5/14/2001), the Department considered the rental of hot air parade balloons to be a taxable rental even though the rental company provided supervision and assistance while the balloons were in use. In this case, the personnel were not considered to be operating the balloon.
The Department has made a similar distinction when considering transactions for various types of property used in recreational amusement activities. In P.D. 07-128 (8/17/2007), the Department found that rentals of a mechanical bull and rock-climbing wall were exempt services requiring an operator with certain skills to maintain safety and control over the amusements during their operation. However, in P.D. 04-194 (10/29/2004), P.D. 06-87 (9/19/2006), and P.D. 23-9 (1/18/2023), the Department found rentals of inflatable amusement games such as moonwalks, slides, and obstacle courses were taxable because the true object of the transaction was the rental of the game and not the skills of the attendant whose technical expertise was not required in order for the amusements to operate. Based on these regulations and policies, the Department can opine as to the taxability of the Taxpayer’s operations.
Equipment Rentals
Transactions involving various outdoor recreational equipment without the provision of a guide constitutes the lease or rental of tangible personal property. The Taxpayer must charge, collect, and remit sales tax on the gross proceeds from such transactions.
Guided Activities
The outdoor recreational activities for which the Taxpayer requests guidance, such as ziplining, kayaking, and whitewater rafting, can involve significant risks that require certain skills or expertise to perform safely. For these types of activities, consideration must be given as to why a participant chooses to engage in a particular activity.
Experienced individuals may be comfortable simply renting equipment to navigate a river or climb trees or mountains. In such cases, as stated above, the rental of such equipment is taxable.
On the other hand, many individuals likely choose activities in large part because of a guide’s skills and expertise in safely operating the equipment and navigating the surroundings. Although the equipment at issue can operate with or without the guide, the skills required to maintain safety more closely resemble the operators of the rock-climbing wall, mechanical bull, or crane rather than the attendants overseeing the inflatable amusements. For this reason, the true object of transactions for activities that include the provision of guides is the provision of a service. Such transaction would be exempt from the sales tax.
Lump Sum Charges
The Taxpayer states that charges for food, drinks, and transportation are sometimes included in the price of its transactions. Retail sales of food or meals are taxable because they can, generally, be consumed without the help of an expert service provider. See Title 23 VAC 10-210-930. Separately stated charges for transportation are exempt. See Virginia Code § 58.1-609.5 3 and Title 23 VAC 10-210-6000. However, the Department’s longstanding policy is that transactions involving both exempt and taxable charges must be itemized or the entire transaction becomes taxable. See P.D. 02-77 (5/2/2002), P.D. 08-76 (6/6/2008), and P.D. 22-68 (4/13/2022). The true object of the total charge is not relevant if taxable (i.e. meals) and nontaxable (i.e. guided outdoor adventures) charges are not itemized.
As such, if the Taxpayer includes a meal in the price for a guided transaction, and if the taxable charge for such meal is not separately stated from the exempt charges, the entire transaction is subject to tax. See P.D. 14-41 (3/20/2014). If meals and other tangible personal property are separately stated, only the tangible personal property is taxable while the guided services including any connected equipment would be exempt.
Similarly, the Taxpayer’s separately stated charges for transportation are exempt, but if the Taxpayer does not itemize the exempt charge for transportation from other taxable sales, the entire transaction is subject to tax. See P.D. 08-74 (6/6/2008). As such, transportation must be separately stated to be exempt.
In summation, the Taxpayer’s rentals of outdoor equipment and sales of meals would be subject to Virginia retails sales and use tax. The Taxpayer must collect, report, and remit all collected taxes to the Department.
The Taxpayer would not be required to collect sales and use tax on guided outdoor activities. However, if the guided activities are bundled with taxable tangible personal property for which a lumped sum amount is charged, the gross amount is taxable and the tax must be collected and remitted.
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 ruling, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4136.B