Was a 0.5% community-development facilities charge collected with taxable retail sales itself subject to Virginia sales tax?

Subject

Community-development facilities charge was part of the taxable sales price

Plain-English summary

Virginia ruled that a 0.5% facilities charge collected from retail customers was itself subject to sales tax. Retailers in a community development authority district were to collect the charge on transactions already subject to Virginia retail sales and use tax and remit it toward a real-estate special assessment supporting public-improvement bonds.

Virginia taxed the total sales price of tangible personal property and taxable services. The definition included costs, labor, services, losses, and other expenses unless a specific statutory exclusion applied. A facilities charge was not one of the listed exclusions.

The result was the same whether retailers collected the charge under agreements tied to the special assessment or under the authority's resolution. The Department addressed only sales tax and expressly did not decide whether the community development authority possessed the legal authority for the described arrangement.

What this means for you

• A separately described charge can still be part of the taxable sales price.
• The key question is whether the statute specifically excludes the charge.
• The source of the collection obligation did not change the sales-tax result here.
• A tax ruling on price treatment does not validate the underlying authority to impose a charge.

Common questions

What was the facilities charge rate?

One-half of one percent of taxable retail sales in designated district parcels.

Why was it taxable?

It accompanied the taxable sales price and was not excluded by the statutory definition.

Did Virginia approve the authority's power to impose the charge?

No. The ruling expressly declined to address that question.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-603.
• Va. Code § 15.2-5152 et seq. and § 15.2-5158(A)(6), as cited in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-22

Original ruling text

March 26, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request a ruling on the application of the Virginia retail sales and use tax to facilities charges to be imposed by the * ("Community Development Authority" or "CDA") upon retailers located within the CDA district.

FACTS

The Community Development Authority was created pursuant to Va. Code § 15.2-5152 et seq . Such CDA operates to assist in the development of public improvements (streets, parks, etc.) relative to a town center development. The CDA issued bonds to finance, in part, such improvements. Among other sources of repayment for the bonds, the locality has levied a special assessment imposed on all real estate property located within the CDA district. A portion of the special assessment is to be calculated based upon taxable sales within designated parcels of the CDA district.

In this regard, landowners within the CDA district have entered into agreements with the CDA to require tenants to collect a facilities charge from their customers equal to one half of one percent (0.5%) of all taxable retail sales and remit such charge to the CDA for application against the special assessment. The CDA has also adopted a resolution pursuant to Va. Code § 15.2-5158 A 6 to impose upon retailers within the CDA district an obligation to collect a facilities charge from their respective customers in an amount equal to 0.5% of the purchase price in all sales transactions made in the CDA district that are subject to the Virginia retail sales and use tax.

The CDA requests a ruling that the facilities charges at issue are includible in the sales price as that term is defined in Va. Code § 58.1-602 and would, therefore, be subject to the Virginia retail sales and use tax, whether collected pursuant to a special assessment or by the CDA resolution.

RULING
Pursuant to Va. Code § 58.1-603, the Virginia retail sales tax is imposed on the gross sales price of tangible personal property sold at retail or distributed in Virginia. Virginia Code § 58.1-602 defines the term "sales price" to mean "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever ." [Emphasis added.] Such statutory term excludes cash discounts taken, certain finance charges, separately stated local property taxes collected and certain other charges.

Based on the sale price definition and the fact that a facilities charge is not specifically excluded by statute from the sales price, I find no basis to exclude such charge from the sales price of any tangible personal property or taxable services sold in the CDA district. Accordingly, a facilities charge included in or with the sales price of tangible personal property or taxable services sold within the CDA district is subject to the Virginia retail sales and use tax regardless of whether such charge is collected pursuant to a special assessment or by CDA resolution.

This response is based on the facts provided as summarized above and makes no opinion as to whether the CDA has the requisite authority to engage in the described activities. Any change in facts or the introduction of new facts may lead to a different result.

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

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-4097007723.R