95-14 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Motor vehicles; Upfittings

Topic

Taxability of Persons and Transactions

Date Issued

01-25-1995

January 25, 1995

Re: §58.1-1821 Application: Retail Sales & Use Tax

Dear****************

This will reply to your letter of October 10, 1994 seeking correction of a sales and use tax assessment to your company,************* (the "Taxpayer") for the period May 1991 through February 1994.

FACTS

The Taxpayer, a vehicle leasing company, contests a recent audit assessment in which they were assessed an additional 1 1/2% tax on upfittings of motor vehicles for which they had been remitting the 3% motor vehicle sales and use tax to the department in what they deem error transactions. The Taxpayer maintains that the 3% tax should have been remitted to the Department of Motor Vehicles (DMV) instead. The Taxpayer purchases vehicles from the manufacturer and has them drop-shipped to a Virginia dealer. The receiving dealer or another dealer modifies the vehicle according to the scheduled lessee's specifications. The vehicle is then titled in Virginia; however, at the time of titling, only the manufacturer's invoice is presented. Once the Taxpayer receives a bill from the dealer for the modifications, the motor vehicle sales and use tax is remitted on that amount.

The auditor held the charges for the upfittings subject to the 4 1/2% retail sales and use tax rather than the motor vehicle sales and use tax. The Taxpayer, on the other hand, maintains that the upfittings are subject to the motor vehicle sales and use tax and requests waiver of the assessment for the additional 1 1/2% tax and a refund of the taxes previously paid or the transfer of such funds directly to DMV as payment of the tax.

DETERMINATION

In Virginia, sales, leases, and rentals of motor vehicles are not subject to the retail sales and use tax provided they are subject to the 3% motor vehicle sales and use tax administered by DMV.

Code of Virginia §58.1-2402 provides that the motor vehicle sales and use tax is imposed on the sale price of each motor vehicle sold in Virginia. "Sale price" is defined in Code of Virginia §58.1-2401 as "the total price paid for a motor vehicle and all attachments thereon and accessories thereto ... exclusive of any federal manufacturer's excise tax, without any allowance or deduction for trade-ins or unpaid liens or encumbrances." Furthermore, Code of Virginia §58.1-2404 provides that the "tax on the sale or use of a motor vehicle shall be paid by the purchaser or user of such motor vehicle and collected by the Commissioner at the time the owner applies to the Division of Motor Vehicles for, and obtains a certificate of title." (Emphasis added.)

From the information provided, it appears that the upfittings occurred before the titling of the vehicles, and thus the motor vehicle sales and use tax was the applicable tax. However, if the upfittings occurred after the titling of the vehicles, they would not have been included within the "sale price" of the motor vehicles subject to the motor vehicle sales and use tax. Instead, they would have been subject to the retail sales and use tax. This is consistent with P.D. 90-189 (10129/90) in which the department held that in a transaction where a new tank and ancillary equipment were installed upon a chassis after the chassis had been titled with DMV, the sale of the new tank and ancillary equipment were subject to the retail sales and use tax.

To verify when the upfittings occurred and thus the appropriate tax, l will have the auditor revisit the Taxpayer to review its records. Based upon this review, the audit assessment may be adjusted. Accordingly, someone from my Interstate Audit group will be contacting the Taxpayer regarding this review.

- - - - Sincerely,
        
        Danny M. Payne
        Tax Commissioner

OTP/8565H

Rulings of the Tax Commissioner