Was the entire portable-toilet rental and servicing charge taxable in Virginia?

Plain-English summary

Virginia held that the entire charge for portable-toilet rental and servicing was taxable. The portable toilet was the true object of the transaction, while waste removal and servicing were incidental to the rental.

The taxpayer's administrative appeal was also untimely. The assessment was dated October 17, 2012, making January 15, 2013 the 90th-day deadline, but the appeal was mailed January 17.

The Department nevertheless confirmed its longstanding substantive treatment, which had been upheld by the Virginia Supreme Court: portable-toilet operations are taxable rentals, unlike refuse-disposal transactions whose true object is pickup and removal service.

The taxpayer's financial-hardship materials were forwarded to the Collections Office's Offer in Compromise Team for a separate doubtful-collectibility review.

What this means for you

• Tax the full portable-toilet charge when servicing is incidental to providing the unit.
• Do not apply refuse-disposal treatment merely because both operations involve waste removal.
• A complete Virginia administrative appeal must be filed within 90 days of assessment.
• Financial hardship may affect collection through a separate compromise process, not the underlying tax determination.

Common questions

Q: Could the business tax only the toilet rental portion?
A: No. Virginia held the entire charge taxable because servicing was incidental to the portable toilet.

Q: Was the appeal timely?
A: No. It was mailed two days after the statutory deadline.

Q: Did the hardship request cancel the assessment?
A: No. It was sent for separate offer-in-compromise review based on collectibility.

Citations and references

• Va. Code §§ 2.2-505 and 58.1-1821.
• 23 VAC 10-20-165 and 10-210-4040 D.
• LZM Inc. v. Department, 296 Va. 105, 606 S.E.2d 797 (2005).
• Virginia Public Documents 91-275 and 03-67; OAG Opinion 11-068.

Subject

Lease or rental of portable toilets is a taxable transaction, True object.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-40

Original ruling text

March 20, 2013

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

Dear *:

This will reply to your letter of January 16, 2013, in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer") for the audit period January 2009 through July 2012.

FACTS

The Taxpayer began doing business as a refuse disposal service operation. In June 2010, the Taxpayer expanded its operation to include the rental and servicing of portable toilets. The Department's audit held the Taxpayer liable for the tax on the rental and servicing of the portable toilets. The Taxpayer disagrees with the assessment, contending that only the rental of the toilets should be subjected to the tax. The Taxpayer also contends that it is unable to pay the assessment due to financial problems and has submitted financial statements in support of its request for relief.

DETERMINATION

Timely Filing of Appeal

Virginia Code § 58.1-1821 states, "Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner...."

Pursuant to Va. Code § 58.1-1821 and Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Tax Commissioner within ninety days from the date of assessment. While the Taxpayer filed a complete appeal, such appeal was not timely filed. In this case, the assessment issued to the Taxpayer is dated October 17, 2012. Based on the provisions of Va. Code § 58.1-1821 and Title 23 VAC 10-20-165, the Taxpayer was required to file a complete administrative appeal by the 90 th day, January 15, 2013. The mailing date of the Taxpayer's appeal is January 17, 2013. Accordingly, the Taxpayer is barred from filing an application for correction of the subject assessment.

Portable Toilets

It has been the longstanding policy of the Department to treat the lease or rental of portable toilets as a taxable transaction. See Public Document (P.D.) 91-275 (10/28/91). In that case, the taxpayer operated a refuse disposal service and expanded its operations to include the leasing and servicing of portable toilets. The Department's audit disclosed that the taxpayer failed to collect the tax on the rental or lease of portable toilets. The taxpayer contended that the portable toilets were incidental to the waste removal services provided and that such services should be treated in the same manner as the taxpayer's refuse disposal operations.

The Department's response cited the provisions of Virginia Regulation 630-10­ - 97.1(B) (2), currently Title 23 VAC 10-210-4040 D, stating that the true object of the refuse disposal operations was the actual pickup and removal of the refuse from its customers, and that the true object of the taxpayer's portable toilet operation was the provision of the portable toilets. The Tax Commissioner determined that the waste removal in the portable toilet operation was incidental to the portable toilets. It was further found in that case that the tax was correctly assessed on the entire charge, including the services provided.

The Department's position was upheld by the Virginia Supreme Court in LZM Inc. v. Department , 296 Va. 105, 606 S.E.2d 797 (2005). See also P.D. 03-67 (8/21/03). More recently, the Office of the Attorney General has issued an official advisory opinion, OAG 11-068 (12/16/11), in accordance with Va. Code § 2.2-505 that supports the Department's use of the true object test. Accordingly, the Department's assessment is correct as assessed.

Financial Hardship

The Taxpayer states that it is unable to pay the Department's assessment due to its financial difficulties. The Taxpayer has submitted financial documents in support of its claim of hardship. I have forwarded the Taxpayer's information to the Department's Offer in Compromise Team in the Department's Collections Office for consideration of an offer in compromise based on doubtful collectibility. Once a review of the documentation and information submitted has been made, the Department will issue its response. The Taxpayer may also contact a member of this team at (804) 367-8045.

The Code of Virginia section, regulations, public documents and OAG opinion cited are available on-line in the Laws, Rules and Decisions section of the Department's website located at www.tax.virginia.gov . If you have any questions regarding this matter, please contact * of the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5296596055.Q