Tax Type
Retail Sales and Use Tax
Description
Leases or Rentals; Personal Property Taxes
Topic
Taxability of Persons and Transactions
Date Issued
10-08-1991
October 8, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This will reply to your letter of December 19, 1990 in which you seek correction of a sales and use tax assessment for *************** ("the Taxpayer").
FACTS
The Taxpayer is a lessor of tangible personal property. An audit of the Taxpayer for the period January, 1987 through February, 1989 produced an interest assessment for the Taxpayer's failure to timely collect and remit the sales and use tax on personal property taxes deemed paid by lessees as part of lease payments.
The Taxpayer contests the assessment, contending that the property taxes are not part of the gross proceeds derived from the lease as the taxes are remitted to the applicable localities directly by the lessee. In addition, the Taxpayer requests a refund of the sales tax previously collected and remitted on such personal property taxes.
DETERMINATION
Va. Code §58.1-603(2) imposes the sales tax on "the gross proceeds derived from the lease or rental of tangible personal property." "gross proceeds" is defined in Va. Code §58.1-602 as "the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services, computed with the same deductions, where applicable, as for sales price as defined in this section over the term of the lease..." In addition, § B of Virginia Regulation (VR) 630-10-57 provides in part that "[t]he term 'gross proceeds' includes any finance or interest charges, insurance charges, charges for property tax on property being leased, and other similar charges." (Emphasis added). Therefore, property taxes paid by lessees are generally subject to the retail sales and use tax.
The only amounts excluded from the term "sales price" are those specifically stated in Va. Code §58.1-602 (See definition of "sales price"). The payment of taxes which become the responsibility of the lessee pursuant to the lease agreement are not statutorily excludable from either "sales price" or "gross lease proceeds." The pass-through by the lessor of property taxes on the leased equipment represents a pass-through of an expense incurred by the lessor in connection with the equipment. Since no specific exclusion from "sales price" was included in Va. Code §58.1-602 for taxes, I must conclude that no such exclusion was intended. See Ruling of the Tax Commissioner dated March 30, 1983, copy enclosed. As such, I find that the personal property taxes paid by lessees to localities for the benefit of the Taxpayer under the terms of the lease agreements would be subject to the sales and use tax.
Accordingly, interest was properly assessed on the Taxpayer's late collection and remittance of the sales tax on the property tax payments in question. However, as the Taxpayer began to collect and remit the tax after receipt of an April, 1988 letter from the department's Technical Services Section, I find basis for the abatement of the interest assessed for the period prior to June 1, 1988. Interest assessed for the period June, 1988 through the audit assessment date of September 27, 1990 will not be abated.
The audit will be adjusted in accordance with the determination reached in this letter.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner