23VAC10-210 Retail Sales and Use Tax

REGULATIONS

Vol. 25 Iss. 23 - July 20, 2009

TITLE 23. TAXATION

DEPARTMENT OF TAXATION

Chapter 210

Proposed Regulation

Title of Regulation: 23VAC10-210. Retail Sales and Use Tax (amending 23VAC10-210-1020).

Statutory Authority: § 58.1-203 of the Code of Virginia.

Public Hearing Information:

August 20, 2009 - 10 a.m., 2220 West Broad Street, Multipurpose Room, Rear Entrance, Richmond, VA

Public Comments: Public comments may be submitted until 5 p. m. on September 18, 2009.

Agency Contact: Bland Sutton, Analyst, Department of Taxation, 600 East Main Street, Richmond, VA 23219, telephone [phone], FAX [phone], or email [e-mail].

Basis: Section 58.1-203 of the Code of Virginia provides that the "Tax Commissioner shall have the power to issue regulations relating to the interpretation and enforcement of the laws of this Commonwealth governing taxes administered by the Department." The authority for the current regulatory action is discretionary.

Purpose: As a result of legislation passed by the 2005 General Assembly, the law with respect to the application of the sales and use tax to automotive refinishers and repairers was altered. A legislative change in the definition of "retail sale" and "sale at retail" provided automotive refinishers and repairers the option of continuing to operate as service providers, or to treat themselves as retailers with respect to tangible personal property that becomes permanently attached to the motor vehicle during the repair process. The purpose of this action is to amend it to reflect this legislative change and to provide guidance to the automotive refinishing industry as to their options with respect to applying the sales and use tax.

This regulatory action is necessary to ensure a predictable and adequate revenue stream for the government to provide for the health, safety, and welfare of its citizens.

Substance: The 2005 General Assembly amended the definition of "retail sale" and "sale at retail" to include separately stated charges for materials used in automotive refinishing and repair when such materials become permanently attached to the vehicle being refinished or repaired. This change in the definition of "retail sale" and "sale at retail" is a departure from longstanding policy that treats automotive refinishers and painters as service providers and the taxable user and consumer of tangible personal property used in providing their service.

Prior to the law change, automotive refinishers and painters are treated as service providers and are the taxable user and consumer of all tangible personal property, i.e., primer, paint, sealant, etc., consumed by them in restoring motor vehicles. The wording of this legislative change allows automotive refinishers and repairers the option of continuing to operate as service providers or to be treated as retailers by separately stating their charges for materials. This regulation section is being amended to reflect this legislative change, provide guidance to the industry, and to also alleviate any confusion that may result from the differing tax application within the same industry.

Issues: The primary advantages to this regulatory action are to provide guidance to the automotive refinishing industry and the general public as to the tax application to the automotive refinishing and repair industry as a result of the 2005 legislative change to the definition of "retail sale" and "sale at retail." This guidance will ensure compliance with the department's policies with regard to automotive refinishers and painters and ensure that these policies are universally applied by the department's audit staff.

The regulatory action poses no disadvantages to the public or the Commonwealth.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The 2005 General Assembly enacted House Bill 2762 (2005 Acts of Assembly, Chapter 121) amending the definition of "retail sale" and "sale at retail" set forth in Code of Virginia Section § 58.1-602 to include separately stated charges for materials used in automotive refinishing and repair when such materials become permanently attached to the vehicle being refinished or repaired. This change in the definition of "retail sale" and "sale at retail" is a departure from the Department of Taxation's (Department) longstanding policy that treats automotive refinishers and painters as service providers and the taxable user and consumer of tangible personal property used in providing their service. This legislative change allows automotive refinishers and repairers the option of continuing to operate as service providers or to be treated as retailers by separately stating their charges for materials. The Department proposes to amend these regulations to reflect the statutory change and to add some clarifying language.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. As a service firm, automotive refinishers and repairers pay sales tax on the paint they buy. As stated above, legislation passed in 2005 has permitted refinishers and repairers the option to be treated as retailers of the paint they apply to vehicles; and thus they become exempt from paying tax on the paint they buy, but instead collect sales tax from their customers on the paint use in refinishing and/or repairing of the customer's vehicle. The Department does not know how many of the 793 automotive body, paint, and interior repair and maintenance firms¹ have utilized the option of being treated as a retailer for the paint they apply to automobiles. The proposal to amend these regulations to reflect Chapter 121 of the 2005 Acts of Assembly will not likely have a significant effect since adding the language in no way alters options and/or requirements for firms, their clients, or anyone else.

Businesses and Entities Affected. The statutory changes affected the 793 automotive body, paint, and interior repair and maintenance firms in Virginia. The proposed amendments to these regulations do not significantly affect businesses and other entities since the proposed amendments only reflect the statutory changes which are already in effect and clarifications.

Localities Particularly Affected. The proposed amendments do not disproportionately affect particular localities.

Projected Impact on Employment. Since the proposed amendments only reflect statutory changes and clarifications and do not change requirements for the public, there is no significant effect on employment.

Effects on the Use and Value of Private Property. Since the proposed amendments only reflect statutory changes and clarifications and do not change requirements for the public, there is no significant effect on the use and value of private property.

Small Businesses: Costs and Other Effects. Since the proposed amendments only reflect statutory changes and clarifications and do not change requirements for the public, there is no significant effect on small businesses.

Small Businesses: Alternative Method that Minimizes Adverse Impact. Since the proposed amendments only reflect statutory changes and clarifications and do not change requirements for the public, there is no significant effect on small businesses.

Real Estate Development Costs. The proposed amendments do not significantly affect real estate development costs.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 36 (06). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

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¹ Data source: Virginia Employment Commission Quarterly Census of Employment and Wages (Quarter 4, 2007)

Agency's Response to Economic Impact Analysis: The agency agrees with the Department of Planning and Budget's Economic Impact Analysis.

Summary:

Chapter 121 of the 2005 Acts of Assembly amended the definition of “retail sale” and “sale at retail” set forth in § 58.1-602 of the Code of Virginia to include separately stated charges for materials used in automotive refinishing and repair when such materials become permanently attached to the vehicle being refinished or repaired. This change in the definition of “retail sale” and “sale at retail” is a departure from the department's longstanding policy that treats automotive refinishers and painters as service providers and the taxable user and consumer of tangible personal property used in providing their service. The proposed amendments allow automotive refinishers and repairers the option of continuing to operate as service providers or to be treated as retailers by separately stating their charges for materials.

23VAC10-210-1020. Motor vehicle refinishers, painters and car washers.

A. Generally. Motor vehicle refinishers and, painters, and washers are generally engaged primarily in rendering personal services, and their gross receipts are not subject to the tax. However, they As personal service providers, motor vehicle refinishers, painters, and washers are the users and consumers of the materials used in their business and are required to pay tax on their purchases. When motor vehicle refinishers and, painters, and washers go beyond the rendition of services and sell tangible personal property such as accessories, parts, seatcovers, paint, etc., they are required to register and collect and pay remit the tax on those retail sales. This section also applies to car washers.

B. Optional tax treatment for motor vehicle refinishers and painters. Effective July 1, 2005, the definition of "retail sale" and "sale at retail" was amended to include separately stated charges made for automotive refinish repair materials that are permanently applied to or affixed to a motor vehicle during its repair. This definitional change affords motor vehicle refinishers and painters the option of either continuing to be treated as a personal service provider with respect to paint, clearcoat, sealants, and other similar items that become a component part of a motor vehicle during the refinishing or repair of the motor vehicle, or to be treated as a retailer with respect to such items. The election to be treated as a retailer is solely at the discretion of the motor vehicle refinisher or painter.

C. Motor vehicle refinishers and painters electing to operate as a retailer. A motor vehicle refinisher or painter electing to operate as a retailer is required to register with the Department of Taxation as a licensed dealer and collect and remit to the Department of Taxation the retail sales tax on all sales of tangible personal property made, including separately stated charges for automotive refinish repair materials. As a licensed dealer, a motor vehicle refinisher or painter may purchase all tangible personal property that becomes a component part of a motor vehicle during the refinishing, painting, or repair of the motor vehicle exempt of the tax for resale. Once a motor vehicle refinisher or painter elects to treat himself as a retailer, such election and tax application must be uniformly applied to all motor vehicle refinishing and repair work performed by such dealer.

D. Consumables and equipment. Regardless of whether the optional tax treatment is elected or not, motor vehicle refinishers, painters, and washers are liable for the tax on purchases of all tangible personal property used or consumed in the performance of their work, and that does not transfer to the customer.

VA.R. Doc. No. R07-250; Filed June 25, 2009, 10:20 a.m.