Tax Type
Retail Sales and Use Tax
Description
Rentals and leases between subsidiaries
Topic
Taxability of Persons and Transactions
Date Issued
12-31-1985
- December 31, 1985
Re: §58.1-1821 Application/Sales and Use Tax
Dear *****
This will reply to your letter of August 28, 1985 seeking correction of an assessment issued by the department for the period December 1, 1979, through March 31, 1985.
Facts
***** (taxpayers) are subsidiaries of a consolidated parent organization. During the period covered by the audit, taxpayers leased certain computer equipment from another subsidiary of the parent organization. Pursuant to the audit, these lease charges were held subject to sales and use tax. Taxpayers contend that such charges should not be subject to the tax since none of the parties involved are engaged in the equipment rental business. Furthermore, taxpayers state that since the same charges between departments of a single corporation would not be subject to the tax, such charges between closely related subsidiaries of a consolidated parent corporation should also be exempt. In support of this contention, taxpayers state that while in form they are separate and distinct corporate entities, in substance they operate as profit and cost divisions of their consolidated parent.
Determination
Section 58.1-603 of the Virginia Code imposes the tax on anyone "who leases or rents...property within this state...[to the extent of] the gross proceeds derived from the lease or rental of [such]...property, where the lease or rental of such property is an established business, or part of an established business, or the same is incidental or germane to such business." Furthermore, 58.1-602(1) defines "business" to include, "any activity engaged in by any person, or caused to be engaged in by him with the object of gain, benefit or advantage, either directly or indirectly,
Section 630-10-57(A) of the Virginia Sales and Use Tax Regulations provides in pertinent part that "[a]ny person engaged in the business of leasing or renting tangible personal property to others is required to register as a dealer and collect and pay the tax on gross proceeds."
In addition, Section 58.1-625 of the Code provides that while a seller or lessor of property is required to add the tax to the sales price or charge for an item, "[t]hereafter, such tax shall be a debt from the purchaser, consumer, or lessee to the dealer until paid and shall be recoverable at law in the same manner as other debts."
While none of the parties to the lease agreements in the present case may be involved in the routine leasing of tangible personal property such as computer equipment, it is undisputed that each of them are engaged in "business" generally, as defined above. Therefore, the leasing of such computer equipment, incidental to such business, is a proper subject for taxation under the sales and use tax.
Furthermore, the lease of such equipment between separate subsidiaries of a single parent company cannot be viewed the same as intra company charges for the use of such equipment, since in the former case there are separate and distinct taxable corporate entities, while in the latter there is only one such entity. So long as taxpayers in the present case, continue to enjoy the benefits available to them as independent corporations they must also bear the burdens of such entities.
Based on all of the foregoing, I find no basis for correction of the assessment in this case, the full amount of which is hereby due and payable. For taxpayers' convenience and future reference I have enclosed copies of previous determination letters issued by the department in similar circumstances.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner