Tax Type
Retail Sales and Use Tax
Description
Agency relationship
Topic
Taxability of Persons and Transactions
Date Issued
01-11-1990
January 11, 1990
Re: §58.1-1821 Application: Sales and Use Tax
Dear ****
This will reply to your letter of August 23, 1989, in which you submit an application for correction of sales and use tax assessed to ****************** as the result of a recent audit.
FACTS
****************** (Taxpayer) is engaged in the management of condominiums, cooperatives, and homeowners associations. A recent audit of the taxpayer produced an assessment for the failure to remit sales or use tax on property purchased in connection with its management activities.
The taxpayer contests the assessment on the basis that it was acting as the purchasing agent for the associations it managed and therefore has no liability for the tax in question. In addition, the taxpayer contends that certain transactions included in the audit were purchases of nontaxable services.
DETERMINATION
I have enclosed a copy of United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd, 569 F.2d 811 (4th Cir., 1978), which sets forth the factors necessary in order to establish an agency relationship for purposes of the Virginia sales and use tax.
Based upon the court's opinion in Forst, the primary factor in determining whether an agency relationship exists is whose credit is bound by the transaction. Based upon our review of the taxpayer's invoices, it is the taxpayer's credit that is bound in the instant transactions. Nonetheless, I will allow the taxpayer thirty days in which to present additional information to demonstrate that its contracts bound the credit of its client associations so as to establish an agency relationship. This information should be presented to the department's Technical Services Section at P.O.Box 6-L, Richmond, Virginia 23282.
The taxpayer alternatively contends that the purchase of computer hardware and software maintenance agreements and copies of a published study are nontaxable service transactions. However, based on the information available, each of the four transactions in fact represented the taxable sale of tangible personal property.
I have enclosed a copy of Virginia Regulation 630-10-62.1, which sets forth the department's policy with respect to maintenance agreements, as well as a recent ruling which applies this policy to computer software maintenance agreements. Based upon these authorities, any maintenance contract that provides for the furnishing of repair parts or replacements for outdated or defective property are subject to the tax.
Further, it is well established that the sale of any book, study report, or other published document in tangible form is subject to the tax. The sale of copies of a published document in this case can be readily distinguished from the nontaxable services rendered in completing the original study.
Finally, I do not find basis at this time for waiver of the penalty assessed to the taxpayer. Although the taxpayer may have taken steps to improve its overall compliance since the department's previous audit, it failed to file any use tax returns during the interim. However, as the result of legislation enacted by the 1989 session of the General Assembly, a tax amnesty program will be conducted from February 1 to March 31, 1990. At that time, the taxpayer may apply for waiver of the penalty, provided that it completes an amnesty application and has paid in full any tax and interest that is due.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner