Were charges for coordinating drayage, rentals, and other vendor services for customer-owned trade-show exhibits subject to Virginia sales tax?

Subject

Providing trade show services for customer-owned exhibits through third party vendors

Plain-English summary

A trade-show exhibit company provided a nontaxable coordination service when it arranged third-party support for exhibits its customers already owned. The services included shipping, drayage, audiovisual support, electrical work, floral decorations, photography, and rentals, billed by line item with an administration fee.

The audit had taxed drayage and rental charges. The Department rejected the auditor's reliance on an earlier ruling about a company selling an exhibit together with services, because this dispute involved customer-owned exhibits rather than exhibit sales.

Under Virginia's true-object test, the customers principally wanted the company's expertise in coordinating on-site vendors. The Department therefore removed the tax assessed on drayage and on rentals used with the customer-owned exhibits.

The company still had to pay tax on tangible personal property it used to provide the exempt service. The ruling also drew a clear boundary: when trade-show services accompanied the company's sale of an exhibit, the entire charge, including the services, was taxable.

What this means for you

• The ownership of the exhibit changed the tax result.
• Separately stated vendor charges did not control; the customer's true object controlled.
• A service provider may make an exempt sale while still owing tax on property consumed in providing the service.
• Bundling the coordination with a sale of the exhibit made the full charge taxable under the ruling.

Common questions

Why were the drayage charges removed from the audit?

They were part of the company's nontaxable service of coordinating support for customer-owned exhibits.

Were rentals automatically exempt?

The charges to customers were removed from this audit, but the company remained responsible for tax on tangible property it used in providing the service.

Would the answer be the same if the company sold the exhibit?

No. The ruling said the entire charge was taxable when the services were provided in connection with an exhibit sale.

Citations and references

• 23 VAC 10-210-4040(A) and (D).
• Virginia Public Documents 87-51 and 02-7.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-208

Original ruling text

September 9, 2010

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

Dear *:

This will respond to you letter in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer") for the period August 2002 through July 2005. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer manufactures and sells trade show exhibits and provides a variety of services in connection with such exhibits. In addition, the Taxpayer provides trade show services for customer-owned exhibits that may include the storage of the customers' exhibits when they are not in use at trade shows. In providing trade show services, the Taxpayer coordinates with its customer to choose and price various third party services that the customer desires and needs for a trade show event. These services may include shipping, drayage, audiovisual services, electrical, floral decorations, and photography. The third party vendors bill the Taxpayer for their services. The Taxpayer in turn charges its customer for each service separately, billed by line item based upon the third party vendors' cost, plus an added administration fee.

The Taxpayer was audited and assessed the sales tax on charges for drayage and tangible personal property provided by third party vendors in connection with the Taxpayer's provision of trade show services for customer-owned exhibits. The auditor assessed the sales tax on drayage as taxable loading charges separate from the transportation of the exhibit. In addition, the auditor assessed the sales tax on the charge to the customer for the rental of tangible personal property in connection with the trade show services and gave credit in the audit for the tax paid by the Taxpayer on such rental property. The auditor relied on Public Document (P.D.) 87-51 (2/27/87) as a basis for the assessment. The Taxpayer contests the tax assessed on the drayage charges and claims these charges are for out-of-state services provided by third party vendors and are not subject to the tax.

DETERMINATION

In P.D. 87-51, the Tax Commissioner addressed the application of the tax to the sale of exhibits used in trade shows that include services. The Tax Commissioner determined that the clients made taxable first use of the exhibits in Virginia in requiring that the exhibits be shipped to a site out-of-state, set-up, dismantled after the show and returned to Virginia for storage. The Tax Commissioner ruled that the total charge for the exhibit and services was subject to the tax. In this instance, the contested issue involves the Taxpayer's provision of services in connection with customer-owned exhibits. Because the contested issue in the Taxpayer's audit does not involve the sale of an exhibit, P.D. 87-51 is not applicable in this case.

Pursuant to Title 23 Virginia Administrative Code (VAC) 10-210-4040 A, charges for services are exempt from the retail sales and use tax, but services provided in connection with the sale of tangible personal property are generally taxable. When a transaction involves both the sale of tangible personal property and the provision of services, generally the transaction is either taxable or exempt on the full amount charged, regardless of whether the charges for the services or the property are separately stated. The true object test is used to determine the taxability of these transactions.

In P.D. 02-7 (1/14/02), the Tax Commissioner addressed the application of the tax to a full service contractor that provides a broad range of services and products including decorating and furnishings, exhibit design and set-up, transportation, management, and audiovisual services for conventions, expositions, trade shows, and special events. In applying the "true object" test in Title 23 VAC 10-210-4040 D, the Tax Commissioner determined that the true object sought by the event sponsors and exhibitors is the taxpayer's expertise in coordinating services that may include the provision of products to ensure a successful event. As such, the taxpayer was deemed a provider of nontaxable services.

After reviewing the Taxpayer's provision of trade show services in connection with customer-owned trade show exhibits, I find that the "true object" sought by the customer is the Taxpayer's expertise to coordinate with third party vendors for on-site support services. Accordingly, the Taxpayer is engaged in the provision of nontaxable services in providing trade show services for customer-owned exhibits. In accordance with Title 23 VAC 10-210-4040, the Taxpayer is required to pay the tax on tangible personal property used in the provision of such trade show services. I would note that, if the Taxpayer provides trade show services in connection with the sale of an exhibit, the entire charge, including the charge for any services provided, its taxable.

CONCLUSION

In accordance with the determination set forth above, the tax assessed on charges for drayage in connection with the provision of trade show services for customer-owned exhibits will be removed from the audit. In addition, the tax assessed in the audit on charges for the rental of tangible personal property in connection with trade show services on customer-owned exhibits will be removed from the audit.

The regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Acting Tax Commissioner

AR/1-2547244022.T