86-158 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Training programs

Topic

Taxability of Persons and Transactions

Date Issued

07-31-1986

July 31, 1986

Re: Ruling Request/Sales and Use Tax

Dear ****************

This will reply to your letter of May 29, 1986 requesting a ruling on the correct application of the sales and use tax to transactions engaged in by *********** (taxpayer).

FACTS

Taxpayer conducts leadership development training programs for business executives on both an in-house basis, for large corporations, and outside for businesses which do not qualify for an in-house program. Taxpayer bills for its training programs on a flat fee plus separately stated cost of materials, (e.g., workbooks and tapes), basis. Such billings vary depending on the length of the particular course and the amount of materials required. In addition, taxpayer markets books and tapes for additional self improvement apart from its provision of classroom instruction.

Taxpayer requests a ruling whether it is liable for the collection and reporting of the sales and use tax in connection with its provision of leadership development training.

RULING

§58.1-608(2) of the Virginia Code provides that the sales and use tax does not apply to "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made."

In addition, §630-10-97.1 of the Virginia Retail Sales and Use Tax Regulation provides in pertinent part:

- In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property ... transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including services provided will be taxable.

The true object of the transactions in the present case is the provision by taxpayer of a nontaxable service, namely the teaching of leadership development skills. Accordingly, the entire charge for such services, including charges for required workbooks and tapes provided by taxpayer to course participants would qualify for exemption from the tax based on the code and regulation sections cited above. However, whenever taxpayer sells any of its workbooks or tapes apart from the provision of classroom instruction, such items will be subject to the tax at the time of sale to customers.

Therefore, taxpayer is the user and consumer of all items purchased for use in providing such training, including workbooks and tapes, and must either pay the tax to its suppliers at the time of making such purchases or remit the use tax directly to the department based on the cost price of such items. However, for those workbooks and tapes purchased for resale to customers apart from its provision of classroom instruction, taxpayer is deemed to be the retailer thereof and must either purchase such items exempt of the tax pursuant to resale certificate of exemption and then collect the tax from its customers at the time of resale, or remit the tax directly to the department based on the sales price of such items.

In addition, if after purchasing any workbooks and tapes pursuant to resale exemption, taxpayer makes any use of such items other than an exempt use, (i.e., if it distributes any of such items to classroom participants of its leadership training programs), such use will be treated as a taxable sale by taxpayer at the time such items are so used by it, and taxpayer must therefore remit the tax based on the sales price of such items directly to the department at the time of such taxable use. (See, copies of §§630-10-20(D) and 630-10-95 of the Regulations enclosed.)

I hope all of the above has answered your question but please let me know if you have any further questions.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner