Which separately stated charges on a Virginia party-tent rental invoice were taxable?

Subject

Tent rentals and late fees taxable; some separate service charges exempt

Plain-English summary

Virginia required tax on the party-tent rental and the separately stated late fee. Late fees were part of taxable rental gross proceeds even when separately stated.

Separately stated installation and delivery charges were exempt. A separately stated fuel surcharge also qualified as transportation only when it directly reflected fuel used to deliver the tents. Fuel for a generator or another purpose unrelated to delivery was taxable.

What this means for you

• Collect sales tax on party-tent rental charges.
• Separately state installation and delivery to preserve the exemptions described in the ruling.
• Document that an exempt fuel surcharge directly relates to transportation.
• Treat rental late fees as taxable gross proceeds under this ruling.

Citations and references

• Va. Code §§ 58.1-602, 58.1-603, 58.1-609.5(3), and 58.1-609.5(4).
• P.D. 08-53, 04-38, 94-7, and 91-274.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-54

Original ruling text

May 1, 2009

RE: Request for Ruling

Retail Sales and Use Tax

Dear *:

Thank you for your recent letter to the Virginia Department of Taxation in which you inquired as to the taxability of certain transaction, conducted by a company in the business of renting party tents in Northern Virginia.

FACTS

As set forth in your letter, the company rents out party tents and separately states the charges for installation, delivery, fuel, and hate fees on the invoice provided to customers. The company does not collect sales tax on the installation, delivery, fuel and late fees, but charges and collects tax on the rental of the party tents. You question whether the company is properly charging tax on these items. I will address the proper tax treatment of each item separately.

RULING

Rental of Party Tents

Va. Code § 58.1-603 imposes a retail sales and use 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. Based on this provision, your client is correct in collecting the retail sales and use tax from its customers on the rental of party tents.

Installation Charges

Charges for services are generally treated as exempt from the retail sales and use tax. Va. Code § 58.1-609.5(4) provides an exemption from the retail sales and use tax for "an amount separately charged for labor or services rendered in installing, applying, remodeling or repairing property sold. Based on this provision, provided the installation charges are separately stated, charges for installing the party tents will not be subject to the tax.

Delivery Charges

Va. Code § 58.1-609.5(3) provides an exemption from the retail sales and use tax for separately stated transportation charges. Provided delivery charges are separately stated on the invoice to the customer, these charges are not subject to sales tax. If the delivery charges are not separately stated on the invoice, they become part of the sales price of the property and are subject to the tax. Thus, your client does not have to collect tax on the charges for delivery of the party tents, provided these charges are separately stated.

Fuel Surcharges

In Public Document ("PD") 08-53, a precast concrete manufacturer protested the assessment of tax on a fuel surcharge, maintaining that this charge was part of its separately stated transportation charge and should therefore, be exempt pursuant to Va. Code § 58.1-609.5(3). The fuel surcharges were added to account for the cost of fuel incurred while delivering the product and was calculated based on a percentage of the freight charge. The Tax Commissioner ruled that the fuel surcharges supplemented the customary freight charge, and, as such, represented an additional charge for transporting the product to the customer. Accordingly, in this case separately stated fuel surcharges were ruled to be exempt from the tax. Had the fuel been added for a purpose unrelated to transportation or delivery, it would not have qualified for exemption.

This ruling stands for the proposition that fuel surcharges will be subject to the retail sales and use tax, unless the surcharge is directly calculated and attributable to a separately stated transportation charge. Therefore, if fuel surcharges are added to your clients' invoices to account for the cost of fuel incurred while delivering the party tents, such a charge will be included as a transportation charge and will be exempt of the tax. Conversely, if fuel surcharges are added to your client's invoice to power generators or for some other purpose, not related to transportation or delivery, those charges will be subject to the retail sales and use tax.

Late Fees

As set forth above, persons engaged in the renting of tangible personal property to others must collect and pay the retail sales and use tax on the gross proceeds. Va. Code § 58.1-602 defines "gross proceeds" to mean the charges made or voluntary contributions received for the lease or rental of tangible personal property computed with the same deductions, where applicable, as for "sales price ...over the term of lease, rental, service, or use, but not less frequently than monthly." In several rulings, the Tax Commissioner has interpreted this provision as rendering late payments taxable, even if separately stated. (See, PDs 04-38, 94-7, and 91-274). As such, your client is required to collect sales tax on the charge for late fees, even though these charges are separately stated.

Conclusion

Based on the statutes, regulations, and administrative rulings cited in this letter, your client should be collecting tax on the gross proceeds from the rental of the party tents and the separately stated charges for late fees. Your client is not required to collect the retail sales and use tax on the separately stated installation charges and delivery charges. Fuel surcharges, separately stated on the invoice, may also be exempt from the tax, provided the charges are directly calculated and attributable to a separately stated transportation charge.

I hope this has addressed your inquiries. The Virginia Code and Virginia Administrative Code sections and public documents cited, along with other reference documents, are available online at wwww.tax.virginia,.gov in the Tax Policy Library section of the Department's website. If you have any questions about this information, you may contact * at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner