Tax Type
Retail Sales and Use Tax
Description
Vehicle service contracts
Topic
Taxability of Persons and Transactions
Date Issued
03-14-1986
March 14, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear ***********************
This will reply to your letter of December 16, 1985, requesting correction of an assessment issued in the above referenced case.
Facts
In connection with its sales of new and used motor vehicles, ********************** (Taxpayer) offers for sale (for a lump) vehicle service contracts which vary in cost depending on the age or mileage of the vehicle sold, the duration of the coverage and, the amount of deductibles the purchaser must pay. The protection so purchased is limited to "covered" breakdowns of specified parts and provides labor, repair parts, and certain amounts for road service. Taxpayer provides such service contracts through three different companies, namely: *********************************. Since the Taxpayer has considered such sales to be sales of insurance, it has not collected sales tax on the sales price of such service contracts.
DETERMINATION
§58.1-608(2) of the Virginia Code, exempts from the sales and use tax, "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made nor services rendered by repairmen for which a separate charge is made.
However, with regard to vehicle service plans of the type presented in this case, §630-10-62.1(F) of the Virginia Retail Sales and Use Tax Regulations provides that only those plans issued by an insurance company regulated by the Bureau of Insurance of the State Corporation Commission are insurance transactions . . . not subject to the tax." Since two of the three vehicle service plans in this case were issued by companies regulated by the Bureau of Insurance, I find basis to remove the charges for such plans from the audit. However, the United Dealer Group Insurance Company is not so regulated. Therefore vehicle service plans issued by this company do not qualify for the exemption.
For future reference, taxpayer should note that whenever any repair parts are supplied to customers pursuant to service contracts issued by insurance companies regulated by the Bureau of Insurance, the tax must be added to the charges to the insurance company collected by the taxpayer and remitted to the department on its monthly return.
Based on all of the foregoing, I find basis for correction of the portion of the assessment relating to sales of vehicle service plans issued by *************************************.
Sincerely,
W. H. Forst
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner