Were setup, on-site maintenance, and pickup charges taxable when a company leased traffic-control equipment to road contractors?

Subject

Taxpayer sells and leases traffic control equipment to road construction contractors.

Plain-English summary

Virginia taxed setup and on-site maintaining charges as part of the gross proceeds from traffic-control equipment leases, but exempted separately stated delivery and pickup transportation charges.

The lessor rented barrels, cones, signs, barricades, directional arrows, and similar equipment. Lane-closure setup and charges for remaining with equipment as a project progressed were services connected with the lease, so they entered the taxable lease base.

Delivery and transportation for picking up rented property followed a different rule. Those charges were exempt when separately stated on the customer invoice.

What this means for you

• Include service charges that support setup or ongoing use of leased equipment in taxable gross proceeds.
• Separately state outbound delivery and return pickup transportation.
• Avoid combining exempt transportation with taxable setup or maintenance in one line.
• Keep invoice descriptions consistent with the actual service provided.

Common questions

Was lane-closure setup taxable? Yes. It was connected with the equipment lease.

Was staying on site to maintain the setup taxable? Yes.

Was pickup exempt automatically? The ruling required the transportation charge to be separately stated.

Citations and references

• Va. Code § 58.1-603(2), § 58.1-602, and § 58.1-609.5(3).
• 23 VAC 10-210-840(B) and 23 VAC 10-210-6000(A).
• P.D. 94-7 (January 7, 1994) and Tax Bulletin 95-7 (September 27, 1995).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-127

Original ruling text

August 17, 2007

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to the lease of traffic control equipment by * (the "Taxpayer"). I apologize for the delay in responding to your letter.

FACTS

The Taxpayer sells and leases traffic control equipment such as traffic barrels, cones, signs, barricades, directional target arrows and other similar traffic control equipment to road construction contractors. The Taxpayer bills its customers lease charges on the individual equipment, as well as a set-up charge for lane closure equipment, and a pick-up charge. In addition, the Taxpayer may be required to remain with the equipment as the construction project progresses and in this instance the customer is charged a maintaining charge.

RULING

Virginia Code § 58.1-603 2 imposes the sales tax on the "gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business, or part of an established business, or the same is incidental or germane to such business."

The term "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, rental, service, or use, but not less frequently than monthly." Title 23 of the Virginia Administrative Code (VAC) 10-210-840 B further provides that gross proceeds also include any service charges in connection with the lease of property.

As the foregoing demonstrates, any service charges in connection with the lease of property are considered gross proceeds, and are therefore subject to the retail sales and use tax. In the Taxpayer's instance, the set-up charge and maintaining charges are taxable as part of the gross proceeds of the lease of the traffic control equipment.

Notwithstanding the above, the delivery charges imposed by the Taxpayer are exempt from the retail sales and use tax provided such charges are separately stated on the invoice to the customer. See Va. Code § 58.1-609.5 3 and Title 23 VAC 10-210-6000 A, which address exempt delivery charges. In addition, separately stated transportation charges made for picking up leased or rented property are exempt from the tax. See Public Document 94-7 (1/7/94) and Tax Bulletin 95-7 (9/27/95).

This response is based on the facts provided as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulation, tax bulletin and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this ruling, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

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