Was a separately charged safe provided only with armored-car service taxable as a rental in Virginia?

Plain-English summary

The monthly safe charge was part of an exempt secure-transportation service, but the armored-car company owed tax on buying the safes. Customers could not rent a safe without the company's core service. The safe held cash or valuables until pickup, was electronically monitored, and became accessible only to company personnel after a customer deposited items.

Virginia's true-object test asks whether a mixed transaction primarily buys a service or tangible property. Here, the customer primarily bought safeguarding and secure transportation; the safe extended that service rather than functioning as a standalone rental.

The customer charge therefore was not subject to retail sales and use tax. The company was the user and consumer of the safes used to provide the exempt service and was liable for tax on their purchase.

Common questions

Q: Did the separate monthly safe fee make it taxable?
A: No, because the safe could not be rented apart from the integrated service.

Q: Who owed tax on the safe itself?
A: The armored-car company when it purchased the safe.

Citations and references

• Va. Code § 58.1-609.5(1).
• 23 VAC 10-210-4040(A) and (D).

Subject

Tax on the purchase of the safes; secured transportation of valuables

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-185

Original ruling text

November 15, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your firm's letter submitted on behalf of * (the "Taxpayer"), in which you request a ruling regarding the application of the retail sales and use tax to the lease of safes to the Taxpayer's customers.

FACTS

The Taxpayer is an independent armored car company that provides security related services to its customers geared towards safeguarding valuables for business organizations. The Taxpayer's services include providing armed security personnel and specialized transportation vehicles for the purpose of transporting monetary funds and other valuables from a customer's business establishment to a particular point.

The Taxpayer is contemplating offering cash manager safes (the "safes") to its customers. Customers who use the safes will pay a monthly fee in addition to the Taxpayer's normal service charges. The customers will not have the option of renting a safe independent of the Taxpayer's core services. The Taxpayer provides that the safes will play an integral role in the core services provided by the Taxpayer, in that they will enable the Taxpayer's customers to secure cash and other valuables on-site until the Taxpayer collects the same for transportation via its armored cars. The Taxpayer states that the customers' safes will be electronically monitored by the Taxpayer. The Taxpayer further states that once the valuables are placed in the safes by its customers, the customers no longer have any access or control over the contents. Rather, the Taxpayer's personnel will be authorized and able to access the contents of the safes.

RULING

Virginia Code § 58.1-609.5 1 provides, in pertinent part, the retail sales and use tax does not apply to "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made ...."

Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 A states, “[c]harges for services generally are exempt from the retail sales and use tax. However, services in connection with tangible personal property are taxable." The regulation further provides that "[t]ransactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated... the true object test is used to determine the taxability of these transactions."

Title 23 VAC 10-210-4040 D states:

In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.

In this instance, the Taxpayer is deemed to be providing an exempt service when it provides secure transportation of its customers' valuables. The rental of the safes to these same customers is an extension of the security and transportation services provided by the Taxpayer to its customers. The true object of the transaction between the Taxpayer's and its customers is the provision of an exempt service, i.e. , the secured transportation of valuables. Accordingly, the rental of the safes to the Taxpayer customers is not subject to the retail sales and use tax. Additionally, the Taxpayer is the user and consumer of the safes used in the provision of the exempt service. As such the Taxpayer is liable for the tax on the purchase of the safes at issue.

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

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4892367754.P