Tax Type
Retail Sales and Use Tax
Watercraft Sales and Use Tax
Description
Interval ownership interests in vessels
Topic
Taxability of Persons and Transactions
Date Issued
06-29-1988
June 29, 1988
Re: Ruling Request/ Watercraft Sales and Use Tax
Retail Sales and Use Tax/
Dear****************
This will reply to your letter of June 11, 1987 on behalf of the **********(taxpayer), seeking information on the application of the watercraft sales and use tax and/or retail sales and use tax to sales of interval vessel ownership interests (hereinafter, VOI's). We regret any inconvenience which may have been caused by this delayed response.
FACTS
According to your letter, the vessels, which range in length from 46 to 58 feet, will be purchased by and titled in the name of the taxpayer's Owners' Association. The taxpayer then intends to offer for sale interval VOI's to members of the owners' Association. The purchaser of a VOI receives an exclusive right to occupy a particular vessel for a specified period of time each year, together with the right to use all furnishings and equipment on the vessel for a period of 25 years. After 25 years the VOI may continue on a year to year basis, or any value remaining in the vessel may be divided among VOI holders based on their respective ownership interests.
For no additional fee, the taxpayer may provide VOI holders with certain "amenities" for use on board the vessels during their occupancy periods. other amenities may also be made available during such periods, but a fee may be charged by the taxpayer for the use of these amenities.
Therefore, you ask whether you are correct in understanding that while the watercraft sales and use tax is due on Owners'
Associations initial purchase of the vessels, that neither the watercraft sales and use tax nor the retail sales and use tax will apply to the taxpayer's sales of VOI's.
RULING
Retail Sales and Use Tax
Section 58.1-608(42) of the Virginia Code exempts from sales tax, "watercraft as defined in §58.1-1401." §58.1-1401 of the Code then defines "watercraft" to mean "any contrivance (i) used or which is capable of being used as a means of transportation on water, (ii) which is fifteen feet or more in overall length measured along the centerline and (iii) which is powered by a motor in excess of twenty-five horsepower"
Accordingly, neither the taxpayer's initial purchases of vessels, nor its subsequent sales of VOI's in such vessels are subject to the retail sales and use tax. However, when the taxpayer makes a separate charge to VOI holders for the use of certain amenities it is leasing or renting items of tangible personal property within the meaning of Virginia Code §58.1-603(2), copy enclosed, and must collect and report the tax on the gross proceeds derived from such leases or rentals. The taxpayer may purchase any of such amenities exempt of the tax pursuant to resale certificate of exemption, Form ST-10, copies enclosed. Those amenities provided by the taxpayer to VOI holders for no charge will be subject to the tax at the time of purchase by the taxpayer. If the taxpayer is not yet registered with the department to collect and report the tax on its leased amenities, it should immediately contact the department's **********District office.
Watercraft Sales and Use Tax
Section 58.1-1402 of the Virginia Code imposes a 2% watercraft tax upon "every watercraft sold in this Commonwealth, ... and upon the gross receipts from the lease, charter or other use of any watercraft by a registered dealer in this Commonwealth." In addition, from July 1, 1987 through July 1, 1992, this Code section provides a maximum tax cap of $l,000 on the sale or use of any watercraft in the Commonwealth.
Based on the foregoing, you are correct in your understanding that the watercraft sales tax is due on the initial purchase by the taxpayer's Owners' Association of vessels for subsequent sale of VOI's to Association members. In addition, based solely on the facts presented in this case, including the taxpayer's agreement of sale and other documentation remitted to the department, I find basis for concluding that the taxpayer's sales of VOI's will not be subject to the watercraft sales and use tax. Unlike the charter or lease of watercraft the gross receipts from which are generally subject to the watercraft tax, the taxpayer's sales of VOI's involve the transfer of actual ownership interests in particular vessels.
It should be noted that this ruling is strictly limited to the facts and circumstances as presented by the taxpayer and the applicable laws and regulations in effect as of the date of this ruling. Any change in these facts and circumstances or in the applicable laws and regulations, may have the effect of invalidating this ruling. For example, if the taxpayer makes any of its VOI vessels available for charter, lease, or any other use, it will be liable for collecting and reporting the watercraft tax to the extent of its gross receipts from such charter, lease or other use, notwithstanding payment of the tax at the time of initial purchase of such vessels by the taxpayer's Owners' Association.
Accordingly, if the taxpayer's method of operation as described above and in materials remitted to the department, or any of the laws applicable to such operation change in any manner subsequent to the date of this letter, it should contact the department immediately to determine if this ruling may still be relied upon.
I hope that the foregoing has responded to your questions, but let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner