Tax Type
Retail Sales and Use Tax
Description
Photocopy equipment and sales; Government contractor
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
01-07-1986
January 7, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear ***************
This will reply to your letter of October 14, 1985, in which you submit an application for correction of sales and use tax assessed to *********** as the result of a recent audit.
FACTS
*********** (Taxpayer) contracted with an agency of the United States government to furnish photocopy equipment for the use of the general public at the agency's facilities in Virginia and to manage such equipment. Copies were made by the public by purchasing a token or magnetic card sold by the taxpayer, which entitled the user to make a certain number of copies. A recent audit of the taxpayer produced an assessment for its failure to collect and remit the sales tax on such sales of photocopies. Additionally, tax was assessed for the taxpayer's failure to remit tax on certain purchases used in providing photocopy service.
The taxpayer asserts that the sales in question were exempt sales of official government documents and records by virtue of Section 630-10-45 of the Virginia Retail Sales and Use Tax Regulations. The taxpayer also asserts that a portion of the photocopies sold were sold directly to the U.S. government for its own use and to "professional copiers" for resale to others. With respect to sales of photocopies, the taxpayer lastly contends that the provisions of Section 58.1-614 of the Code of Virginia and Section 630-10-110 of the Virginia Retail Sales and Use Tax Regulations relating to sales by vending machines should be applicable to the sale of photocopies in this case, thereby reducing the assessment issued to the taxpayer. With respect to its purchases, the taxpayer contends that some items included in the department's audit were resold by the taxpayer to the U.S. government and that certain supplies included in the audit became component parts of the photocopies sold, qualifying such supplies for the resale exemption.
DETERMINATION
Section 630-10-45 of the Virginia Retail Sales and Use Tax Regulations provides, in part, that "[t]he provision of copies of official documents or records by the State, its agencies, and political subdivisions does not constitute a retail sale subject to the sales tax." Although this provision is directed toward sales of official documents and records by Virginia's state and local governments, the same would naturally hold true for sales of such documents and records by the United States government. Therefore, had the instant sales been made by the federal government, no tax would apply, however, the sales were made by a contractor of the federal government in this case and the exemption does not apply.
Sales of photocopies to the U.S. government are exempt from the tax by virtue of Section 58.1-608.18 of the Code of Virginia; therefore, such sales will be removed from the department's audit pending the submission of documentation to support such sales. On the other hand, I see no basis for removing sales to "professional copiers" from the department's audit. First, it is my understanding that the taxpayer does not have on file any resale certificates of exemption. Virginia Code Section 58.1-623 specifies that "[a]ll sales . . . are subject to the tax until the contrary is established". Under the statute, the burden of proving that a sale is exempt is upon the seller unless he takes from the purchaser an exemption certificate. Furthermore, even if the copies purchased by "professional copiers" were passed on to their customers, such transactions do not necessarily constitute sales for resale. At least some of the "professional copiers" in question likely were not engaged in selling a product at retail, but in providing a personal
service.
The applicability to coin-operated and similar photocopy machines of the special provisions of the sales and use tax law and regulations relating to vending machine sales has not heretofore been addressed by the department. Virginia Code Section 58.1-614 addresses the application of the tax to "a dealer who makes sales of tangible personal property through vending machines, or in any other manner making collection of the tax impractical, as determined by the Tax Commissioner". Although the instant photocopy machines are not vending machines, I recognize that there is some impracticality involved in collecting the tax. Irregardless, I do not find basis for permitting the taxpayer to remit tax based on five percent of its purchases for resale, but will permit the taxpayer to remit an amount based on a percentage of gross receipts which takes into account the inclusion of the sales tax.
Under the resale exemption, the department will remove from its audit any tangible personal property which the taxpayer purchased and subsequently resold to the U.S. government. Of course, the taxpayer will need to provide documentation of such resales to the government, preferably the official U.S. government purchase orders for the transactions. Also, purchases of toner and developer that became component parts of the copies sold will also be removed from the audit.
Information relating to sales of photocopies to the U.S. government and purchases resold to the U.S. government should be furnished to the department's Technical Services Section at P. O. Box 6-L, Richmond, Virginia 23282, within the next 30 days so that the appropriate audit revisions may be made.
Sincerely,
W H. Forst
Tax Commissioner
Rulings of the Tax Commissioner