Rulings of the Tax Commissioner
Retail Sales and Use Tax
Application of the retail sales and use tax on the sale of carbon dioxide
August 26, 2010
Re: Request for Ruling: Retail Sales and Use Tax
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax on the sale of carbon dioxide to the Taxpayer's customers. I apologize for the delay in responding to your correspondence.
The Taxpayer is a wholesale company whose core business is to provide carbon dioxide (in liquid and gaseous forms) for use in beverage carbonation systems (soda fountains). The Taxpayer's customers include restaurants, convenience stores, movie theaters, theme parks and sports venues.
The Taxpayer delivers liquid carbon dioxide that is stored in a stainless steel cryogenic tank (the "tank") installed on the customers' premises. Gas carbon dioxide is delivered to the customers in portable cast iron steel containers (the "containers"). In most instances, the Taxpayer rents the tank, and containers to its customers. The customers connect these devices to the beverage carbonation machines where the liquid or gas carbon dioxide is mixed with water and syrup to produce a fountain drink. In some cases, the gas delivered to the customers is a blend of carbon dioxide and nitrogen, or pure nitrogen. This gas is used to carbonate and propel beer through a tap system. In both instances, the Taxpayer's customers sell fountain sodas or tap beer to their patrons and charge and collect the sales tax on such sales. When the carbon dioxide or nitrogen is depleted, the Taxpayer refills the tank, and continues to do so until the relationship with the customer is terminated. Upon termination, the customer is obligated to return the tank or container to the Taxpayer.
The Taxpayer requests a ruling regarding the application of the retail sales and use tax to the following:
The rental of the tanks and containers to the Taxpayer's customers;
The sale of liquid or gas carbon dioxide and nitrogen;
Invoices that do not separately state the rental of the tanks and containers and the sale of the carbon dioxide or nitrogen; and
Fees, charges and surcharges charged in connection with the rental of the tanks and containers and the sale of liquid or gas carbon dioxide or nitrogen.
Rental of Tanks and Containers
§ 58.1-603 imposes a retail sales and use tax on the gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business, or part of an established business, or the same is incidental or germane to such business.
Title 23 of the Virginia Administrative Code (VAC) 10-210-840 A provides that "[a]ny person engaged in the business of leasing or renting tangible personal property to others is required to register as a dealer and collect and pay the tax on gross proceeds."
Pursuant to the cited authorities, the Taxpayer is required to register as a dealer in Virginia. The Taxpayer should charge and collect the sales tax on the charges imposed for the lease of the tanks and containers to its customers. Additionally, the Taxpayer is required to remit such tax to the Department.
Sale of Liquid or Gas Carbon Dioxide and Nitrogen
§ 58.1-623 states, "All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter."
Subsection B of this statute further provides, "The certificate mentioned in this section shall relieve the person who takes such certificate from any liability for the payment or collection of the tax, except upon notice from the Tax Commissioner that
such certificate is no longer acceptable."
In Public Document (P.D.) 92-3 (2/26/92), the taxpayer operated motion picture theaters throughout Virginia. The taxpayer sold popcorn, soft drinks and candy through its concessions. The taxpayer purchased carbon dioxide to mix with syrup, water and ice to produce the soft drinks sold in the theaters. The taxpayer requested a ruling regarding the application of the retail sales and use tax on its purchases of carbon dioxide for use in its soft drink machines. The Tax Commissioner ruled that the carbon dioxide used in the fountain drinks sold by the theaters becomes a part of the item being sold and may be purchased exempt of the tax using a resale exemption certificate.
The carbon dioxide and nitrogen sold by the Taxpayer becomes a part of the soft drinks and beer sold by the Taxpayer's customers. Accordingly, the Taxpayer can sell the carbon dioxide and nitrogen to its customers exempt of the Virginia retail sales and use tax, provided the customers provide a valid Form ST-10 (resale exemption certificate) to the Taxpayer at the point of sale.
The Taxpayer asks whether the total invoiced amount is subject to the Virginia retail sales and use tax if the invoice does not separately state the rental charge for the tanks and containers and the sales charge for the carbon dioxide and nitrogen.
§ 58.1-602 defines sale, in pertinent part, as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration ...."
§ 58.1-602 defines sales price, in pertinent part, as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, 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 materials used, labor or service costs, losses or any other expenses whatsoever."
§§ 58.1-603 and 58.1-602, the Virginia sales tax is imposed on the sale or lease of tangible personal property. Taxation is the rule. Accordingly, if the invoice does not separately state the charges, the tax would apply to the total price charged.
The Taxpayer requests a ruling regarding certain fees, charges and surcharges that it charges in connection with the rental of the tanks and containers and the sale of liquid or gas carbon dioxide and nitrogen.
§ 58.1-609.5 3 provides that the retail sales and use tax does not apply to "[t]ransportation charges separately stated."
Pursuant to this statute, as long as the transportation charges are separately stated on the invoice provided to the Taxpayer's customers, the retail sales and use tax will not apply to such charges.
In P.D. 09-54 (5/1/09), it was determined that fuel surcharges are subject to the retail sales and use tax, unless the surcharge is directly calculated and attributable to a separately stated transportation charge. Fuel charges that supplement the customary freight charge represent an additional charge for transporting the product to the customer and are exempt as long as they are separately stated on the invoice provided to the customer.
Pursuant to P.D. 09-54, the Taxpayer would not need to charge and collect the retail sales and use tax on energy/fuel charges, as long as these charges supplement a customary freight charge and are separately stated on the invoice provided to the Taxpayer's customers.
Hazardous Materials Fee, Tank Inspection/Permit Fee and Personal Property Tax Charge
Title 23 VAC 10-210-840 B states that gross proceeds "includes any finance or interest charges, insurance charges, charges for property tax on the property being leased and other similar charges."
Pursuant to Title 23 VAC 10-210-840 B, these charges that relate to the rental of the tanks and containers at issue are subject to the retail sales and use tax.
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.
Code of Virginia
sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may
contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Craig M. Burns
Acting Tax Commissioner