Was filling a scuba tank with compressed air a taxable sale of property or a nontaxable service in Virginia?

Plain-English summary

Virginia held that filling scuba tanks with compressed air was a taxable retail sale of tangible personal property. The business filtered and compressed air using specialized machinery and placed it into customers' tanks. That process made the air measurable and perceptible within Virginia's statutory definition.

The transaction's true object was the compressed air, not a standalone service. A flat fill price regardless of how much air the tank needed did not change its character. Virginia also pointed to the taxable treatment of oxygen, a component of air, and rejected reliance on other states' rulings.

Common questions

Q: Did flat-rate pricing make the transaction a service?
A: No. Virginia focused on what the customer obtained.

Q: Was this merely preliminary guidance?
A: No. The Department called it its final determination and upheld the assessment.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-603.
• 23 VAC 10-210-560 and 23 VAC 10-210-660.
• Virginia Public Document 87-158.

Subject

Tangible Personal Property; Sale of compressed air

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-10

Original ruling text

February 27, 2012

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

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request reconsideration of the prior determination issued to the Taxpayer on March 24, 2011 in regard to sales and use tax assessed for the period August 2006 through July 2009. I apologize for the delay in responding to your letter.

FACTS

In the Department's prior letter, it was determined that the Taxpayer's sale of compressed air used in scuba tanks was subject to the retail sales and use tax as the sale of tangible personal property. The determination upholds the assessment of tax based on the statutory definition of tangible personal property as provided in Va. Code § 58.1-602. The Department's position is also supported by Va. Code § 58.1-603 and Title 23 of the Virginia Administrative Code (VAC) 10-210-560.

The Taxpayer requests reconsideration based on its contention that it is selling a service and cites Public Document 87-158 (6/2/87) and rulings from other states to support its argument. The Taxpayer also states that because it charges the same rate to fill tanks with air without consideration of the amount of air needed, it is not selling the air used to fill the tank. Additionally, the Taxpayer states that Title 23 VAC 10-210-660 addresses the sale of oxygen and not air.

DETERMINATION

Virginia Code § 58.1-602 defines tangible personal property as that which may be seen, weighed, measured, felt or touched or is perceptible to the senses in any other manner. The prior determination provides that the Taxpayer is selling air that is filtered and compressed using specialized machinery and put into tanks. By virtue of the process itself, the air used is measured and clearly perceptible to the senses.

As determined in the prior letter, the sale of compressed air is the sale of tangible personal property and subject to the retail sales tax. Virginia Code § 58.1-603 imposes the sales tax on all sales of tangible personal property unless exempted by statute. Additionally, Title 23 VAC 10-210-660 states that oxygen is subject to the tax. Oxygen as a component of air subjects the transaction to the tax.

The rulings made by other states have no bearing on Virginia's tax treatment of the sale at issue. Additionally, the fact that the Taxpayer charges the same rate to fill the tank regardless of the amount air needed does not change the nature of the transaction. As the Taxpayer states in its letter, the customer brings its tank in to have it refilled with air. Accordingly, the true object of the transaction is the attainment of compressed air.

Pursuant to Va. Code §§ 58.1-602 and 58.1-603, the Taxpayer's sale of compressed air is subject to the retail sales tax as the sale of tangible personal property. Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, Attention: *, 600 East Main Street, 15th Floor, Richmond, Virginia 23219.

I am aware that the Taxpayer has requested a meeting but has failed to respond to numerous attempts made by a member of my staff in the Appeals and Rulings unit to schedule the meeting. As a result, this determination is being issued without a meeting.

This letter is the Department's final determination on this matter. The Code of Virginia and regulation sections 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 determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

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