Tax Type
Retail Sales and Use Tax
Description
Film rentals
Topic
Taxability of Persons and Transactions
Date Issued
05-08-1984
May 8, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear ****
This will reply to your letter of December 1, 1983 in which you submit an application for relief of sales and use tax assessed to as the result of an audit.
Facts
***** (hereinafter *****) was engaged, until August 1983, in making rentals of motion pictures from an office within Virginia. An audit of ***** revealed a failure to collect the sales tax on all rentals of motion pictures to Virginia customers as well as rentals to persons outside of Virginia who took delivery of films at *****, Virginia office.
***** contests the imposition of tax asserting that it was not advised of the taxability of film rentals by the Department of Taxation. In addition, ***** contends that the majority of the taxable rentals identified in the department's sample audit were to churches and institutions of learning which enjoy an exemption from the sales and use tax. Lastly, ***** asserts that rentals of motion pictures to organizations such as university film societies are exempt from tax inasmuch as the screening of such films in equivalent to public exhibition at a motion picture theater. Subsequent to audit, ***** has obtained exemption certificates from a number of organizations whose rentals of films from ***** were included in the department's audit sample.
Determination
§ 58-441.17(a) of the Code of Virginia states that "[a]ll sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the person who makes the sale, distribution, lease, or storage, unless he takes from the purchaser or lessee a certificate to the effect that the property is exempt.
Inasmuch as ***** has obtained a number of exemption certificates from its customers, I find basis for revising the department's audit to delete those rentals for which exemption certificates have been obtained. However, I find no basis for deleting organizations or persons from the audit from whom certificates have not been obtained.
You assert that rentals to institutions of learning and churches should be deemed tax exempt rentals regardless of whether exemption certificates have been obtained or not; however, you have not established that such rentals are exempt from tax.
Virginia Code § 58-441.6(t) provides a sales and use tax exemption for "[t]angible personal property for use or consumption by a college or other institution of learning." The department has interpreted the above statutory exemption in Virginia Retail Sales and Use Tax Regulation 1-96, which states in part:
The tax applies to purchases of tangible personal property such as yearbooks, class rings, graduation gowns and caps, photographs, school supplies, etc., for use by pupils. It also applies to other purchases of tangible personal property made for the use of any school class, club, group, organization, association or individual, to be paid for out of funds other than public funds. Such items cannot be purchased under certificates of exemption, and the tax must be paid to dealers. The school class, club group, organization, association or individual making such purchases, and not the school, is the consumer of the items of tangible personal property.
A review of our audit records reveals that the vast majority of rentals to organizations affiliated with an institution of learning were to student groups of the types listed above. While the department has accepted the exemption certificates you have obtained, we cannot grant further relief for rentals to student groups from which ***** has not obtained exemption certificates.
Your alternative argument that rentals to certain student groups are exempt from tax under the provisions of Virginia Code § 58-441.3(d) has also not been substantiated. That statute states the terms "lease" or "rental" do "not include the leasing, renting or licensing of copyright audio or video tapes and films for public exhibition at motion picture theaters." The department has traditionally interpreted this statute as exempting from tax only those persons or corporations in the business of operating movie theaters.
The Virginia Supreme Court has adopted a doctrine of strict construction with respect to statutory tax exemptions. Under such doctrine, the Court has held that exemptions are construed strictly against the taxpayer with any doubt to be resolved against the taxpayer (see Commonwealth v. Community Motor Bus 214 Va. 155, 198 S.E.2d 619 and numerous other cases). While the term "motion picture theater" is not defined in our sales and use tax statutes, there is certainly doubt that the screening of a film by a student group would be exempted under Virginia Code § 58-441.3(d); consequently, an exemption is not available.
With respect to rentals to churches, the taxability of such transactions is governed by Virginia Code § 58-441.6(gg) which exempts from tax, until July 1, 1984, tangible personal property "for use in religious worship services by a congregation or church membership while meeting together in a single location and religious educational materials purchased by churches for use in their regular school of religious education." As you can see, this is a narrowly drawn exemption and absent exemption certificates we are unable to know if films rented to churches were used in an exempt or taxable manner. Therefore, we must deem all rentals made to churches to be taxable unless an exemption certificate has been obtained. For purposes of prospective compliance, I must note that effective July 1, 1984, Virginia Code § 58-441.6(gg) has been amended to expand the church exemption to cover all tangible personal property for use in a church building in carrying out the work of a church.
For your convenience I have attached a computation detailing the total non-taxed rentals still contained in the department's audit sample. Included are detailed listings of non-tax exempt organizations, organizations which may be exempt but from whom exemption certificates have not been obtained as well as probable rentals to a student at *****. In addition, we have totalled rentals to institutions of learning and churches for which exemption certificates have not been obtained. Lastly, we have totalled rentals to student organizations at the ***** inasmuch as the exemption certificate obtained from the ***** would appear to apply only to rentals to *****. Consequently, all other rentals to ***** organizations will be deemed taxable until proven otherwise.
A revised notice of assessment will be issued shortly. Such assessment will be deemed due and payable; however, refunds will be issued or credits granted should ***** obtain additional exemption certificates relating to this assessment.
I understand that ***** has closed its film rentals office in Virginia but that a subsidiary engaged in renting audio visual equipment continues to operate in this state. Despite the lack of a physical place of business in Virginia, I find basis for ***** to collect the Virginia sales tax on rentals to Persons or groups within this state.
Such determination is based upon the provisions of Virginia Code § 58-441.12 which states in part:
A dealer shall be deemed to have sufficient activity within the State to require registration (to collect the tax) ... if he ... maintains or has within this State, directly or through an agent or subsidiary, an office, warehouse, or place of business of any nature ...
Therefore, ***** should continue to collect the tax from non-exempt Virginia customers; however, great care should be exercised to make sure that correct exemption certificates are obtained and absent such certificates, all rentals should be taxed.
Please advise within thirty days if a hearing is desired in this matter.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner