Tax Type
Retail Sales and Use Tax
Description
Monitored alarm systems
Topic
Taxability of Persons and Transactions
Date Issued
07-11-1986
July 11, 1986
Re: Request for Ruling/Sales and Use Tax
Dear *****************
This will refer to your letter of May 28, 1985 and your subsequent meeting with representatives of the department's Tax Policy Division. I apologize for the delay in responding the questions posed in your letter and that meeting.
As noted in your letter, your business is engaged in the sale and installation of burglar alarms, fire alarms, and closed circuit surveillance systems. The application of the sales and use tax to businesses such as yours is set forth in §-630-10-17.1 of the Virginia Retail Sales and Use Tax Regulations. In short, Regulation § 630-10-17.1 provides that charges for the sale or lease and installation of non-monitored burglar, security, and fire alarm systems represent taxable sales or leases of tangible personal property, while the sale or lease and installation of monitored systems of the same type represent nontaxable service transactions.
The primary question posed in your letter is how the tax would apply in the event that a customer, subsequent to installation, decides that he wants to switch from a non-monitored system to a monitored one, or vice-versa. In particular, you were concerned whether your business would be required to refund the tax paid by a customer who switches to a monitored system and collect the tax from one who switches to a non-monitored system. The answer to your question is "no." The sales tax is levied upon the sale of tangible personal property; therefore, a change of mind by a purchaser after the sale and installation of an alarm system would have no impact for sales tax purposes.
In your meeting with departmental representatives, you also raised the point that the distinction between monitored and non-monitored systems may not be a valid one. More prefer able to you would be to either tax all alarm system sales and leases or to treat all alarm dealers as contractors with respect to real estate. I understand that your business is presently treating itself as a contractor.
The policy set forth in Regulation § 630-10-17.1 is based primarily on the "true object" concept set forth by the Virginia Supreme Court in WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.B.2d 245 (1977). In WTAR, the court addressed the application of the tax to transactions that involve both the sale of tangible personal property and the provision of services. The court found that where the true objects of the purchaser is the servicer of the seller, the transaction is not taxable, however, where the true object is the property provided in connection with the service, the transaction is subject to the tax. In applying the true object concept to alarm dealers, it was determined that the true object of obtaining a monitored system is to obtain the services of the dealer who monitors the system. In such an instance, the property composing the alarm system is only incidental to the services rendered. However, the true object of obtaining a non-monitored system is to obtain the system itself and therefore the transaction represents the taxable sale or lease of tangible personal property.
Although such an approach may not be preferable from the standpoint of your business, it is in the interest of both the department and alarm dealers to see every dealer treated in the same manner for sales and use tax purposes. Such uniformity permits two dealers with identical transactions to pay the same amount of tax. Such would not be the case, however. if an exception was made to Regulation § 630-10-17.1 in the case of your business. Therefore, from this date forward your business will be required to adhere to the provisions of Regulation § 630-10-17.1.
While I cannot authorize your business to operate in a manner at variance with Regulation § 630-10-17.1, the department is more than willing to work with you and representatives of the Virginia Fire and Burglar Alarm Association in reviewing the effectiveness of the regulation. In this regard, any suggestions for changes to or clarification of the regulation that the association might have would be greatly appreciated.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner