Tax Type
Retail Sales and Use Tax
Description
Property tax on leased property; Gross proceeds defined
Topic
Taxability of Persons and Transactions
Date Issued
07-14-1986
July 14, 1986
Re: Ruling Request/ Sales and Use Tax
Dear *****************
This will reply to your letter of May 23, 1986 seeking information on the correct application of Virginia's Retail Sales and Use Tax to lease by********** (taxpayer). Specifically, a ruling is requested as to whether the definition of gross receipts or gross proceeds for purposes of computing the sales and use tax includes separately stated charges for reimbursement of personal property taxes on its leased property.
§58.1-603(3) of the Virginia Code imposes the tax on "the gross proceeds derived from the lease or rental of tangible personal property. "Gross proceeds" is defined in §58.1-602(4) of the Code as "the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services." Therefore, the total amount received by a lessor for the lease of tangible personal property is generally subject to the sales tax. However, certain charges are deductible from gross proceeds under the provisions of §58.1-602(17) of the Code:
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- ...an amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold,...finance charges, carrying charges, service charges or interest from credit extended-on sales of tangible personal property under conditional sale contracts or other conditional contracts providing for deferred payments of the purchase price,...[or] transportation charges separately stated...
- ...an amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold,...finance charges, carrying charges, service charges or interest from credit extended-on sales of tangible personal property under conditional sale contracts or other conditional contracts providing for deferred payments of the purchase price,...[or] transportation charges separately stated...
In addition, based on facts analogous to those presented in this case the Fairfax County Circuit Court ruled in Lutherville Supply and Equipment Company v. Commonwealth Virginia, that "an incremental addition to the purchase price... is not excluded from the imposition of Virginia of Sales Tax." Specifically, the court held that a "finance Charge" added at the time of sale to the value of equipment leased with an option to purchase was indeed an addition to the purchase price and as such was taxable.
Therefore, inasmuch as taxes of any kind are not deductible from gross proceeds under §58.1-602117), property taxes paid by lessees as part of a lease payment, (whether or not separately billed or charged), are subject to the retail sales and use tax.
I hope that this has answered your question but please let me know if we may be of further assistance.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner