A taxpayer that installs custom automated home theaters, speakers, lighting, and security systems for residential and commercial customers was properly assessed sales tax on programming and trip charges made in connection with the sale of tangible personal property. The programming charges relate to the programming of home video and audio systems. The trip charges relate to charges for technicians for the provision of programming services. The taxpayer provides optional programming services (which are separately stated on customer invoices) to customize audiovisual equipment purchased by customers. The taxpayer stated that the programming services are optional, but customers often prefer to have a trained professional customize and program the equipment. The taxpayer argued that the charges for the programming services are exempt as charges for installation and/or as modifications of prewritten programs, and the true object of the transaction is to purchase a service.
Virginia tax law provides that generally, an amount separately charged for labor or services rendered in connection with the modification of prewritten programs is exempt. An audit sample showed that the taxpayer charges a separate installation charge. The programming charges are services to customize audiovisual equipment and are separately stated from the installation charges. Based on this, the programming services are not a separately stated labor or service charge for the repair or installation of tangible personal property. The charges are not for the modification of prewritten programs, as the technicians are not modifying a computer or software program. Rather, they are programming audiovisual equipment. The audiovisual equipment is the true object of the transaction. The programming services are of no value to customers without the audiovisual equipment. As such, the programming services are properly subject to tax. However, if the services were provided without the accompanying sale of the audiovisual equipment the services would have been exempt. This position that services, even if optional and separately stated, are taxable if sold in conjunction with taxable property demonstrates how states are narrowing exemptions through interpretation without any law changes.
Regarding the trip charges, Virginia tax law provides a sales and use tax exemption for transportation charges separately stated. The taxpayer argued that a separately stated fee for providing a technician to provide separately stated programming services was exempt as a separately stated transportation charge. The taxpayer stated that equipment that is delivered is incidental to the provision of the technician service since the equipment could be delivered by common carrier but is delivered by the technician for the convenience of the customer. The charges did not qualify as exempt transportation or delivery charges. The charges are not for the transportation or delivery of the product to the customer, but rather are for providing a technician to the customer. As such, the trip charges are subject to tax. (Ruling of Commissioner, P.D. 20-94, Virginia Department of Taxation, June 2, 2020)