My utility bought a transformer, and the invoice has separate charges for installation/reassembly, shipping, and offloading at the job site -- which of these charges are subject to Virginia sales tax?

Plain-English summary

When you buy heavy equipment, the invoice often breaks charges into several line items: the equipment itself, installation, shipping, and unloading at the job site. This ruling walks through each of those line items separately for one specific purchase -- a transformer bought by an electric utility -- and shows that "separately stated" doesn't automatically mean "exempt." Each charge type is analyzed under its own rule.

Installation and reassembly: Virginia's definition of "sales price" includes any services that are part of a sale (Va. Code § 58.1-602), and the "true object" test (23 VAC 10-210-4040) asks whether a transaction with both property and service elements is really about getting the property or the service. Here, the Department found the true object of the whole transaction was clearly acquiring the transformer -- the installation and reassembly charge "would not be of value to the Taxpayer without the procurement of the transformer" -- so that charge is taxable, following the Department's established distinction between taxable "assembly" labor (performed before installation) and generally-exempt "installation" labor (performed after a product is complete), citing P.D. 86-186 and P.D. 94-351.

Shipping and delivery: Virginia specifically exempts separately stated transportation charges (Va. Code § 58.1-609.5 3; 23 VAC 10-210-6000 A) -- meaning charges for getting the product from the seller to the buyer ("transportation-out," including postage or common carrier charges). As long as this charge is broken out separately on the invoice (rather than folded into the price of the property), it's exempt.

Offloading: This is where the utility's argument failed. The utility argued the transformer wasn't truly "delivered" until it was offloaded from the truck at the job site using a crane or forklift, so offloading should be part of the exempt transportation charge. But Virginia's own regulation specifically EXCLUDES "handling charges" from the definition of exempt transportation/delivery charges (23 VAC 10-210-6000 B), and the Department has previously classified loading charges as taxable handling (P.D. 87-98) because loading is a separate activity from the actual transportation itself. Applying the same logic in reverse, offloading (unloading) charges are likewise taxable handling charges, not exempt transportation -- regardless of how the utility conceptualized "delivery" for its own operational purposes.

The ruling is expressly limited to the facts presented (this specific transformer purchase and invoice), and any change in facts could lead to a different result.

What this means for you

Any business purchasing heavy equipment or machinery with a multi-line-item invoice

Expect installation and reassembly charges tied to acquiring the equipment to be taxable, even if separately stated -- the "true object" of the whole transaction (getting usable equipment) generally controls, not how the invoice happens to break out the charges.

Anyone negotiating or reviewing a delivery/shipping charge on an equipment purchase

Make sure the transportation/delivery charge is SEPARATELY STATED on the invoice to claim the exemption -- if it's bundled into the property's price, the whole thing becomes taxable.

Anyone assuming loading, unloading, or offloading charges are part of exempt "delivery"

They're not. Virginia treats loading AND unloading/offloading as taxable "handling" charges, distinct from the actual transportation of the goods -- regardless of whether you consider the item not truly "delivered" until it's off the truck.

Common questions

Q: Is a separately stated installation charge for equipment exempt from Virginia sales tax?
A: Generally no, if the true object of the whole transaction is acquiring the equipment itself -- installation and reassembly charges tied to that acquisition are taxable, even when broken out as a separate invoice line item.

Q: Is a separately stated shipping/delivery charge on an equipment purchase taxable?
A: No -- Virginia specifically exempts separately stated transportation/delivery charges (getting the product from seller to buyer), as long as they're not bundled into the sales price.

Q: Is an offloading or unloading charge at the job site part of the exempt delivery charge?
A: No -- offloading and unloading are treated as taxable "handling" charges, distinct from exempt transportation, even if you consider the product not truly delivered until it's off the truck.

Q: What's the difference between taxable "assembly" and generally-exempt "installation" labor?
A: Assembly labor is performed BEFORE installation and is generally taxable when included in the sale of tangible personal property, even if separately stated. Installation labor is performed AFTER the product is complete to put it in place for the customer -- but here, because the true object of the whole transaction was acquiring the transformer, the installation/reassembly charge was still taxable.

Citations and references

• Va. Code § 58.1-602 (defines "sales price" to include any services that are part of a sale of tangible personal property)
• 23 VAC 10-210-4040 (true object test for transactions combining tangible personal property and services)
• P.D. 86-186 (9/18/1986) (defines installation as labor performed after a product is complete to install it for the customer)
• P.D. 94-351 (11/22/1994) (distinguishes taxable assembly labor, performed before installation, from installation labor)
• Va. Code § 58.1-609.5 3 (exempts separately stated transportation charges from sales and use tax)
• 23 VAC 10-210-6000 A-B (defines transportation/delivery charges as seller-to-purchaser "transportation-out"; excludes handling charges from the exemption)
• P.D. 87-98 (3/27/1987) (loading charges are taxable handling charges, distinct from exempt transportation)
• P.D. 08-53 (4/30/2008) (further application of the handling-versus-transportation distinction)

Subject

Taxable Services : Transportation and Delivery Charges - Installation and Assembly, Unloading or Offloading

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-48

Original ruling text

March 22, 2022

Re: Ruling Request: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the “Taxpayer”), in which you request a ruling on the application of the Virginia retail sales and use tax to services related to the installation of tangible personal property and related shipping charges.

FACTS

The Taxpayer is a member-owned utility company that provides electric service to Virginia residents. The Taxpayer has provided a copy of an invoice from its vendor and requests a ruling regarding the taxability of services related to the purchase, transportation and assembly of a transformer.

RULING

Virginia Code § 58.1-602 provides the definition of “sales price” as it relates to the retail sales and use tax and provides, in part, the following:

“Sales price” means the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, 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 material used, labor or service costs, losses or any other expense whatsoever…”

As provided above, the term sales price means the total amount, including any services that are part of the sale, for which tangible personal property is sold. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 sets out the Department’s policy with respect to the retail sales tax application to services and Subsection A provides the following:

Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.

Transactions 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. As explained in subsection D of this section, the “true object” test is used to determine the taxability of these transactions.

Subsection D of Title 23 VAC 10-210-4040 provides guidance to determine the true object of a transaction that contains both tangible personal property and a service element and provides, in part, the following:

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.

Service Charges

Installation and Reassembly

The Taxpayer is requesting guidance on the taxability of a service charge for installation and reassembly of a transformer after it is delivered to the Taxpayer’s location. The Taxpayer asserts that because the charge is strictly for installation, which is a service, it should not be subject to the Virginia retail sales tax.

Based on the cited authorities, the true object of the transaction at issue is the acquisition of a transformer. The service charge for installation and reassembly would not be of value to the Taxpayer without the procurement of the transformer. Under such circumstances, the separately stated installation and reassembly fee in connection with the purchase would be subject to the sales tax.

Additionally, installation is defined in Public Document (P.D.) 86-186 (9/18/1986) as “labor rendered after the product is complete in order to install it for the customer.” In P.D. 94-351 (11/22/1994), a distinction is made between taxable assembly labor and exempt installation labor. Assembly labor is considered labor performed prior to installation. Absent a statutory exemption, assembly charges included in the sale of tangible personal property are subject to the tax, even if separately stated on the invoice.

Shipping and Handling Charges

Virginia Code § 58.1-609.5 3 states that the retail sales and use tax does not apply to “transportation charges separately stated.” Title 23 VAC 10-210-6000 A states:

The tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to the tax.

Title 23 VAC 10-210-6000 B states that:

As used in this section the terms “transportation” and “delivery charges” mean charges for delivery from the seller to the purchaser, commonly known as “transportation-out,” and include postage or common carrier charges. Transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relative to purchases for resale, nor do they include handling charges . [Emphasis added].

The Tax Commissioner has addressed the transportation and handling issue in prior determinations.

Offloading Charges

Offloading charges are for the removal of the product from the Taxpayer’s trucks at the customer job site. Offloading requires the use of a crane or forklift. The Taxpayer maintains that the product is not actually delivered until it is offloaded.

The above-cited regulation establishes that handling charges are not an element of exempt transportation. In P.D. 87-98 (3/27/1987), the Department classified loading charges as handling charges on the basis that loading is an activity separate from the actual transportation of the property to the purchaser. In a similar manner, offloading or unloading charges are taxable handling charges. See also, P.D. 08-53 (4/30/2008)

Delivery Charges

Based on the above authorities, a separately stated charge for delivery of tangible personal property is not subject to Virginia retail sales tax.

I hope the foregoing will respond 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 sections, regulations, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/2120.A

Related Documents

86-186

87-98

94-351

08-53