23 Va. Admin. Code § 10-210-4040

Current through Register Vol. 41, No. 4, October 8, 2024

Section 23VAC10-210-4040 - Services

A. Generally. Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.

Transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated. As explained in subsection D of this section, the "true object" test is used to determine the taxability of these transactions.

B. Taxable services. Charges made for the following are taxable:

1. Any services included in or in connection with the sale of tangible personal property;

2. Any services in connection with the fabrication of tangible personal property whether or not the customer furnishes, either directly or indirectly, the materials used in fabrication (see 23VAC10-210-560);

3. Any services in connection with the furnishing, preparing, or serving by a person for a consideration of meals or other tangible personal property (see 23VAC10-210-930); and

4. Any rooms, lodgings or accommodations furnished to transients by any hotel, motel, inn, tourist camp or cabin, camping grounds, club or any other similar place furnished for less than 90 continuous days (see 23VAC10-210-730) .

C. Exempt services. The following are not subject to the tax:

1. Personal, professional, or insurance transactions which involve sales as inconsequential elements for which no separate charge is made;

2. Separately stated services performed by repairmen (see 23VAC10-210-3050);

3. Separately stated labor or service charges for the repair, installation, application or remodeling of tangible personal property;

4. Separately stated transportation charges (see 23VAC10-210-6000);

5. Separately stated charges for alterations to apparel, clothing and garments (see 23VAC10-210-120);

6. Charges for gift wrapping services performed by a nonprofit organization;

7. An amount separately charged for labor or services rendered in connection with the modification of prewritten programs as defined in § 58.1-602 of the Code of Virginia (see 23VAC10-210-763); and

8. Computer programs that meet the requirements of "custom programs" as defined in § 58.1-602 of the Code of Virginia (see 23VAC10-210-763) .

D. Determination of the appropriate tax treatment of service and sale transactions; information services. In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.

Example of a taxable transaction. If one commissions an artist to paint a portrait, the entire transaction is deemed to be a taxable sale despite the fact that a considerable amount of the charge represents the artist's labor, since the object is to obtain the finished product.

Example of an exempt service transaction. Charges for training programs which include charges for required workbooks and tapes are exempt from the tax as charges for services since the object is to obtain the training services. However, separately stated charges for workbooks and tapes are subject to the tax.

In instances where both the services rendered and the property transferred are critical elements of a transaction, the degree of customization, uniqueness or specific services provided in connection with the product shall be considered in determining its appropriate tax status. The following are examples of transactions in which the tax status is based on these factors:

1. Taxable.

a. Standard data lists, reports

b. Extra copies of reports, letters

c. Equipment rentals

d. Data communications equipment

2. Exempt.

a. Customized data lists, reports

b. Original letters, reports

c. Equipment rentals with operators

d. Data communications services, including equipment

The object of the exempt transactions is to obtain a service from the seller. However, the object of the taxable transaction is to obtain the tangible personal property provided by the seller since no special or customized services are involved in providing the tangible property.

The object of any transaction which includes the transmittal of information through electronic means (e.g., current stock market quotations via a terminal) is deemed to be a service since the object of the transaction is to obtain the service of electronic information transmittal and the tangible personal property included serves only as the medium for securing the service. However, the sale or lease of tangible personal property which transmits or receives electronic information not in connection with the provision of information services is taxable.

Example. A taxpayer provides information retrieval services and in connection therewith leases or rents computer equipment to its customers. Charges for the retrieval service, which include charges for the lease or rental of the equipment, are exempt from the tax. However, if the taxpayer leases or sells computer equipment to customers without the provision of the information services, such lease or sale is taxable.

Information conveyed via tangible means (e.g., diskette, computer tape, report, etc.) generally is taxable except for information customized to a particular customer's needs and sold to that particular customer.

E. Tax responsibilities. A service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services. If a supplier fails to collect the tax from a service provider, the provider shall remit use tax to the department as provided in 23VAC10-210-6030.

Any service provider who also makes retail sales of tangible personal property must register as a dealer with the department and collect and remit the tax on its sales.

Example of service provider making retail sales. A person engaged in transmitting and receiving facsimile documents for a fee is deemed to be providing a nontaxable service. However, if he charges a fee for copies of a faxed document, such charges are taxable.

When making bulk purchases of items, some of which will be used in providing services and some of which will be used in making retail sales, a person may purchase all such items exempt from the tax using a certificate of exemption, Form ST-10. The person shall remit use tax to the department on any tangible personal property purchased for resale but used in providing exempt services based on the cost price of the items used.

23 Va. Admin. Code § 10-210-4040

Derived from VR630-10-97.1 §§ 1-5; revised January 1985; amended, eff. July 1, 1994.

Statutory Authority

§§ 58.1-203 and 58.1-609.5(1) of the Code of Virginia.