Did Virginia retail sales tax apply when a long-term vehicle lessor passed local personal property tax to its lessees?

Plain-English summary

Virginia Tax said the long-term leases were outside the retail sales and use tax and motor-vehicle rental tax systems. They remained subject to Virginia motor-vehicle sales and use tax, which the Department of Motor Vehicles administers.

The lessor paid local personal property tax on leased vehicles and separately passed that charge to Virginia lessees. It asked whether the retail sales-price exclusion for separately stated local property taxes applied.

Va. Code § 58.1-602 contained that retail-sales-tax exclusion. But 23 VAC 10-210-990 excluded motor vehicles subject to Virginia motor-vehicle sales and use tax from retail sales and use tax.

The leases were long-term highway-use arrangements lasting a number of years. They did not fit the short-term rental definitions discussed under former Va. Code § 58.1-2401 or Va. Code § 58.1-1735. Thus, neither retail sales tax nor motor-vehicle rental tax governed.

Because DMV administered the applicable motor-vehicle sales and use tax, the Tax Commissioner declined to answer the tax treatment of the passed-through property-tax charge and referred the inquiry to DMV.

What this means for you

• Identify which Virginia tax regime applies before analyzing an invoice exclusion.
• Long-term vehicle leases and short-term rentals can fall under different statutes and agencies.
• A Virginia Tax ruling may not resolve an issue administered by DMV.

Common questions

Q: Did the Tax Commissioner say the local property-tax charge was exempt?
A: No. The response declined to decide the applicable motor-vehicle sales-tax question.

Q: Was retail sales tax the governing tax?
A: No.

Q: Which agency had jurisdiction?
A: The Virginia Department of Motor Vehicles.

Citations and references

• Va. Code §§ 58.1-602, 58.1-1735, and former 58.1-2401.
• 23 VAC 10-210-990.

Subject

Long-term lease of a motor vehicle subject to the Virginia motor vehicle sales and use tax

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-206

Original ruling text

December 13, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request a ruling with respect to the application of the retail sales and use tax to local personal property taxes paid by * (the "Taxpayer"), and passed on as a charge to Virginia residents who lease motor vehicles from the Taxpayer.

FACTS

The Taxpayer leases motor vehicles on a long-term basis to Virginia residents ("lessees"). When a local personal property tax is levied to the Taxpayer, the Taxpayer collects payment from its lessees for the tax, which is separately stated on the lease billing statements. The Taxpayer claims that the local personal property tax that is separately stated on its invoices is exempt from the retail sales and use tax pursuant to an exclusion set out in the term "sales price" as defined in Va. Code § 58.1-602.

DETERMINATION

Virginia Code § 58.1-602 is the definitions statute for Virginia retail sales and use tax purposes and defines the term "sales price" as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property, including any services that are a part of the sale . . . ." For Virginia retail sales and use tax purposes, the term "sales price" excludes, among other things, "separately stated local property taxes collected." While the Virginia retail sales and use tax applies to tangible personal property, it is not necessarily applicable to every piece of tangible personal property used, consumed, stored or distributed in Virginia. For instance, motor vehicles that are subject to the Virginia motor vehicle sales and use tax are not subject to the Virginia retail sales and use tax. See Title 23 of the Virginia Administrative Code 10-210-990.

Because a long-term lease of a motor vehicle for highway use is generally in effect for a number of years, such lease does not qualify as a "rental" as that term was formerly defined in Va. Code § 58.1-2401 (the definitions provision of the Virginia Motor Vehicle Sales and Use Tax Act) prior to July 1, 2012, or as it is now defined in Va. Code § 58.1-1735 (the definitions provision of the newly enacted Virginia Motor Vehicle Rental Tax Act). Rather, a long-term lease of a motor vehicle remains subject to the provisions of the Virginia motor vehicle sales and use tax. For this reason, such leases are not subject to the Virginia motor vehicle rental tax or the Virginia retail sales and use tax administered by the Department of Taxation. Because the motor vehicle sales and use tax is administered by the Department of Motor Vehicles ("DMV"), I am unable to respond to the Taxpayer's tax inquiry. The Taxpayer may send its tax inquiry to the attention of Rick Holcomb, DMV Commissioner, at the Virginia Department of Motor Vehicles, Post Office Box 27412, Richmond, Virginia 23269.

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 sections 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 ruling, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5179263994.R