Tax Type
Retail Sales and Use Tax
Description
Maintenance contracts
Topic
Exemptions
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 June 13, 1986 seeking information on the correct application of the sales and use tax in the following situations.
FACTS
In connection with its medical equipment supply business, taxpayer provides service contracts for the maintenance and repair of such equipment to its customers. In the past taxpayer has charged the tax on the lump sum (full) amount billed to its customers under such contracts. Taxpayer requests a ruling whether the tax would only apply to the charges for tangible materials and supplies used in providing such services and not to charges for labor, if such labor charges were separately stated on its invoices to customers.
In addition, taxpayer requests a ruling whether a certificate of exemption presented by one of its Richmond clients, hearing the name and address of an apparently unrelated Newport News corporation would be acceptable by the department to exempt such client's purchases from taxpayer.
RULING
§630-10-62.1 of the Virginia Retail Sales and Use Tax Regulations provides that:
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- "[m]aintenance contracts, the terms of which provide both repair or replacement parts and repair labor, represent a sale of tangible personal property. The total charge for such contracts is subject to the tax since at the time the contract is entered into it is impossible to ascertain what portion of future repair transactions will represent parts and what portion will represent labor. Thus the tax will apply to the total charge for such contracts, regardless of the fact that the contract may specify separate charges for parts and labor. (emphasis added)
- "[m]aintenance contracts, the terms of which provide both repair or replacement parts and repair labor, represent a sale of tangible personal property. The total charge for such contracts is subject to the tax since at the time the contract is entered into it is impossible to ascertain what portion of future repair transactions will represent parts and what portion will represent labor. Thus the tax will apply to the total charge for such contracts, regardless of the fact that the contract may specify separate charges for parts and labor. (emphasis added)
In response to taxpayer's second question, §58.1-623 of the Virginia Sales and Use Tax law provides in pertinent part:
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- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter.
- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter.
Based on this statutory language, and whether or not taxpayer's Richmond client is related to the Newport News firm named on the certificate of exemption, such certificate is not acceptable to the department to exempt such clients purchases from taxpayer. Furthermore, if taxpayer's Richmond client is not presently registered with the department for purposes of remitting directly to the department the use tax on its purchases of equipment and supplies made from out of state suppliers exempt of Virginia's sales tax, it should register with the department immediately.
I hope all of the above has answered your questions, but please let me know if we can be of further assistance.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner