Sales Tax or Not?

It can be confusing to many whether we need to charge you sales tax on our equipment rentals. We are based in Virginia. If you (the Client) are based (your billing address) in Virginia, the Virginia Administrative Code regarding sales tax on “Leases or rentals” currently reads as follows:

“A. Generally. Any 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. A lessor of tangible personal property whose place of business is outside this state and who leases or rents tangible personal property to Virginia customers is required to register as a dealer and to collect and pay the tax on the gross proceeds. Generally, the tax applies to leases or rentals of machinery and equipment which is leased or rented without an operator.”

In addition, a ruling in 2018 specified this even more: equipment rented with an operator to operate the equipment does not necessitate charging sales tax:

“Based on the Department's longstanding policy, the provision of personnel with the rental of equipment is not sufficient to consider the transaction an exempt service.  The personnel must also operate the equipment for the transaction to be considered an exempt service.”

So, while providing operators alongside equipment doesn’t make the transaction an exempt service, the provision of operators who also operate the equipment rented does exempt the service. We operate the provided equipment in all of our productions, so there is nothing to worry about here.

To sum it up, renting equipment from us without an operator for it will incur sales tax in Virginia. Renting equipment from us AND having us operate it (99% of productions), or renting based out of another state where we are not currently required to register, and no sales tax!

https://law.lis.virginia.gov/admincode/title23/agency10/chapter210/section840/

https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner/18-106

Error in this explanation? Let us know please!