We rent out an event venue for one lump-sum price that includes tables and chairs -- can we get Virginia to reconsider a ruling that our whole rental fee is taxable, by arguing the space itself is a nontaxable service?

Plain-English summary

This ruling is a request for reconsideration of an earlier Virginia sales/use tax determination, P.D. 23-74, involving an event venue that charged a single lump-sum price covering both the venue space and tangible personal property like tables and chairs -- for the period September 2012 through August 2018.

The long road to this point: During the Department's original audit, the venue didn't provide records, so assessments were issued on the best available information. The venue appealed, and the Department issued P.D. 20-28, finding the assessments properly issued but giving the venue one final chance to produce records. The venue then supplied additional information, and the Department revised the assessments accordingly. The venue appealed again -- arguing its transactions weren't taxable at all because providing event space is a nontaxable service and any included tangible personal property wasn't the "true object" of the deal, or alternatively that liability should only run from when the business entity actually began operating. The Department's ruling on that appeal, P.D. 23-74, upheld tax liability from when the venue began operating, holding that including tangible personal property made the transactions taxable and that the "true object test" (used to sort out whether a transaction bundling goods and services is really a nontaxable service) simply didn't apply here because the transactions didn't involve a service to begin with.

This ruling addresses the venue's request to reconsider that determination. Virginia law (Va. Code § 58.1-1822) allows reconsideration only if the request meets one of four specific grounds:

1. The Tax Commissioner misstated or got the facts wrong, and correcting that would change the outcome;
2. The law has since changed by legislation, court decision, or other authority;
3. The Department's own policy was misapplied, and applying it correctly would change the outcome; or
4. The taxpayer has discovered genuinely new evidence that wasn't available during the original appeal.

The venue invoked grounds (a) and (c) -- misstated facts and misapplied policy -- arguing that two older Department rulings, P.D. 02-38 and P.D. 12-82, treat rental of real estate facilities as a nontaxable service. The Department found this argument didn't hold up on its own terms: both of the cited rulings specifically involved transactions that did not include any rental of tangible personal property, and both explicitly stated that transactions involving an exchange of tangible personal property are subject to tax. In other words, the venue's own supporting precedent actually confirmed the Department's position rather than undermining it. Because the venue hadn't shown any actual misstatement of facts or misapplication of policy, the reconsideration request failed, and the assessment was upheld a second time -- with updated interest and a 60-day payment window before further interest and collection action.

What this means for you

Any business considering a request for reconsideration of a Virginia tax determination

Know the four narrow grounds in Va. Code § 58.1-1822 before filing: misstated facts, changed law, misapplied policy, or genuinely new evidence. Simply re-arguing the same position the Department already rejected, without satisfying one of these four categories, won't succeed.

Event venues, banquet halls, and similar businesses that bundle space rental with tables, chairs, or other equipment

This ruling reinforces that including tangible personal property in a lump-sum rental fee can make the entire transaction taxable -- the Department applies the "true object test" only when a genuine service is actually part of the transaction, and found it didn't apply here at all.

Anyone citing older rulings to support a reconsideration argument

Read the cited precedent carefully before relying on it. Here, the venue's own supporting citations turned out to describe the opposite fact pattern (no tangible personal property involved) and to state the opposite rule from what the venue needed.

Common questions

Q: What are the grounds for requesting reconsideration of a Virginia tax determination?
A: Under Va. Code § 58.1-1822, a request must show one of four things: the Commissioner misstated the facts, the law has changed, Department policy was misapplied, or genuinely new evidence has surfaced that wasn't available during the original appeal.

Q: Does bundling tables and chairs into an event venue rental make the whole rental fee taxable in Virginia?
A: Based on this ruling and the P.D. 23-74 determination it upholds, yes -- including tangible personal property in the transaction can make the entire lump-sum fee taxable, and the "true object test" (which can exempt bundled transactions that are really services) doesn't apply if the transaction doesn't actually involve a service.

Q: Can I get a Virginia tax ruling reconsidered just by making the same argument again?
A: No. This ruling shows that repeating an argument the Department already addressed, without actually satisfying one of the four statutory reconsideration grounds, will fail.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1822 -- governs requests for reconsideration of a Tax Commissioner's final determination, requiring one of four specific grounds

Prior rulings referenced (described here, not linked): P.D. 02-38 (4/1/2002) and P.D. 12-82 (5/1/2012) -- cited by the taxpayer for the proposition that real estate facility rentals are nontaxable services, but the Department found both rulings actually involved no tangible personal property and both affirmed that transactions with tangible personal property are taxable; P.D. 20-28 (2/7/2020) -- the original appeal ruling finding the audit assessments properly issued and giving the taxpayer a final opportunity to provide records; P.D. 23-74 (6/23/2023) -- the determination this ruling reconsiders (and upholds), finding the venue's transactions taxable due to included tangible personal property and holding the true object test inapplicable.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-120

Original ruling text

October 26, 2023

Re: Request for Reconsideration: Retail Sales and Use Tax

Dear *:

This will respond to your letter in which you seek reconsideration of Public Document (P.D.) 23-74 (6/23/2023) and correction of the retail sales and use tax assessments issued to * (the “Taxpayer”) for the period September 2012 through August 2018.

FACTS

The Taxpayer, an event venue in Virginia, included tangible personal property, such as tables and chairs, as a part of its venue rentals. The Taxpayer charged one lump sum amount for rental of the venue and any tangible personal property.

During the Department’s audit, the Taxpayer did not provide any records, so assessments were issued based on the best available information. The Taxpayer appealed and the Department issued P.D. 20-28 (2/7/2020), determining that the assessments were properly issued. The Taxpayer was allowed one final opportunity to provide the necessary records. Subsequently, the Taxpayer provided additional information and the Department revised the assessments based upon the new information received.

The Taxpayer appealed the revised assessments, alleging its transactions are not subject to Virginia’s retail sales and use tax because the provision of space is not taxable and any tangible personal property included in the transactions is not the true object of the transactions. In the alternative, the Taxpayer alleged the assessment should be reduced because only a portion of the transactions are taxable, and the Taxpayer should be liable for tax only after the business entity was formed and began operations.

The Department issued P.D. 23-74, upholding the assessment of tax after the Taxpayer began operations. The Department determined that the Taxpayer’s transactions were taxable because of the inclusion of tangible personal property, and that the “true object test” was not applicable because the transactions did not involve the provision of a service. The Taxpayer timely requests reconsideration, arguing that fees charged for the use of certain real estate facilities represents a nontaxable service for retail sales and use tax purposes, and any tangible personal property included was not the true object of the transactions.

DETERMINATION

A taxpayer who disagrees with the Tax Commissioner’s final determination issued pursuant to Virginia Code § 58.1-1822 may request a reconsideration of the determination. Such request, however, must meet one of the four following requirements:

a.The facts upon which the original determination is based are misstated by the Tax Commissioner or are inaccurate, and the determination would have different result based on a correction of the Tax Commissioner’s misstatement of the facts presented of a clarification of the original facts presented in the taxpayer’s administrative appeal;

b.The law upon which the original determination is based has been changed by legislation, court decision or other authority effective for the tax period(s) at issue;

c.The policy upon which the original determination is based is misapplied, and the determination would have a different result based on the application of the proper policy; or

d.The taxpayer has discovered additional evidence or documentation that was not available to the taxpayer at the time the original administrative appeal was filed with the department, and the additional evidence or documentation could produce a result different from the original determination.

In this case, the Taxpayer cites subsections (a) and (c) in support of its request for reconsideration. The Taxpayer argues that the Department’s policy, outlined in P.D. 02-38 (4/1/2002), and P.D. 12-82 (5/1/2012) considers the rental of certain real estate facilities a nontaxable service. However, both cases cited by the Taxpayer specifically state that the transactions at issue do not involve the rental of tangible personal property and explain that transactions involving the exchange of tangible personal property are subject to the tax.

Accordingly, the Department did not misstate the facts or misapply the law or policy in upholding the Taxpayer’s assessment because its transactions included the provision of tables and chairs. The assessment at issue is upheld and remains due and payable. The Taxpayer will receive an updated bill with accrued interest to date shortly. The Taxpayer should remit the amount due within 60 days of the date on the updated bill to avoid the accrual of additional interest and possible collection action.

The Code of Virginia sections and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at (804) , or via email at **@tax.virginia.gov.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4669-C

Related Documents

02-38

12-82

20-28

23-74