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In a Virginia Supreme Court case, it was determined that a taxpayer who leased portable toilets was responsible for taxes on proceeds from pumping service charges because the true object of the transactions was the lease of the portable toilet and not the service of emptying them. The taxpayer thought that the true object test did not apply to this situation, but the courts disagreed. The taxpayer argued that it offers the pumping service to other companies who also lease portable toilets, so the service was not a component of the lease. The court found that the taxpayer did not advertise the price for this service; it merely offered pumping services to make the rental business practical. Also, the service was billed based on the number of toilets leased as opposed to how much waste was removed. Due to the fact that the toilets could not be leased without these services, which were essential for the functionality of the toilets, they did not qualify for a maintenance contract exemption. Since the lease was the true object of the transactions, they were deemed taxable. Separate billing of the lease and the pumping services did not render them exempt. (LZM, Inc. v. Virginia Department of Taxation, Virginia Supreme Court, Jan. 14, 2005)

(09/07/2005)

COST recently issued an economic study prepared by a third party surrounding the impact of extending sales tax to business services as well as an analysis of the current sales tax on business purchases. Some of the findings of the study include: (1) A number of states are considering extending the sales tax to more services, this could exacerbate the current economic distortions from the sales tax on business inputs; (2) The current sales tax on business inputs violates several tax policy principles of economic growth, efficiency, equity, and simplicity; (3) A sales tax on business inputs is an additional cost of doing business in the state, which companies must either attempt to pass on to their customers or reduce their economic activity in the state; (4) Most states do not tax services principally purchased by business due to the pyramiding and complexity it would create. The study concluded that a true retail sales tax would impose a uniform tax only on final consumption, which occurs at the household level. This true retail sales tax would not be imposed on the goods or services purchased by a business. (Sales Taxation of Business Inputs, Council On State Taxation, January 25, 2005)

(02/15/2005)

The IRS has released tables for the 2004 sales tax deduction that was instituted by the American Jobs Creation Act of 2004. The Act provides that a taxpayer can deduct either their state and local income taxes or their state and local sales taxes from their income as itemized deductions. If a taxpayer didn’t maintain a record of sales tax paid, deduction tables are available at http://www.irs.gov/pub/irs-pdf/p600.pdf. Taxpayers in localities that impose additional sales taxes should remember to complete the worksheet on the second page of the publication that adjusts the deduction to reflect the state and local sales tax rates. (HR 4520, American Jobs Creation Act of 2004)

(01/21/2005)

In a revenue ruling, the Alabama Department of Revenue discussed the taxability of medical record processing services. Fees that were related to intangible services were not taxable. Separately stated flat fees for record location, photocopying fees and handling fees were taxable if they were connected with tangible photocopies. The service provider was also responsible for Alabama sales and use tax on equipment purchases that were used in the course of business. (Revenue Ruling No. 04-003, Alabama Department of Revenue, October 27, 2004)

(01/21/2005)

The United States district court ruled that a telephone service provider was entitled to a refund of federal excise tax since the service provided did not fall under the definition of “toll telephone service.” The taxed service is defined as a charge that varies in amount of “distance and elapsed transmission time.” The company charged for its service based on elapsed transmission time, but did not vary its charges in any way related to distance. The service provider charged per-call. (Fortis, Inc. v. United States of America, United States District Court, September 16, 2004)

(11/30/2004)

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