Opinion ID: 1059000
Heading Depth: 2
Heading Rank: 2

Heading: The Maintenance Contract Exemption

Text: Code § 58.1-609.5 exempts from application of the sales tax those maintenance contracts which provide for both repair or replacement parts and repair labor. A maintenance contract is any agreement whereby a person agrees to maintain or repair an item of tangible personal property over a specified period of time for a fee which is determined at the time the agreement is entered into. 23 VAC XX-XXX-XXX(A) (2004). The trial court found that while LZM may call [the contract which included the pumping services] a tax-exempt maintenance contract ... [the evidence shows] that it was ... an incidental agreement and that the main purpose of the entire transaction was for the lease of the toilet[s]. Citing Strickland v. Sperry Rand Corp., 248 Ga. 535, 285 S.E.2d 1 (1981), LZM argues that the maintenance contract exemption applies to the provision of toilet pumping services. In Strickland, an electronic equipment rental corporation collected and remitted sales tax on its rental charges, but did not collect sales tax on maintenance charges. Id. Ruling on an assessed deficiency based on the maintenance charges, the Supreme Court of Georgia held that the maintenance charges were not taxable as part of the gross lease charge. Id. at 2. The Court found that the corporation was not liable for sales tax on its maintenance charges because the price of maintenance varied with each piece of equipment, and the cost of maintenance was based upon a cost analysis of repair and preventive maintenance of each particular piece of equipment. Id. The difference between the case at bar and Strickland clearly shows that the charges for pumping services are not exempt costs under a maintenance contract. While the electronic equipment in Strickland required maintenance only to prevent or correct a defect, the portable toilets are specifically designed to require the pumping services in conjunction with their use. Such proper and normal use necessitates the regular removal of accumulated waste. The pumping services do not repair or maintain the toilets in order to reduce the likelihood of a defect in the future. Rather, it is the pumping services that render the toilets useful and without which they could not be leased. The maintenance contract exemption contemplates services in addition to those necessary to the item's immediate function. The exemption, therefore, does not apply to the portable toilet pumping services, and we find nothing in the statute or regulations that would carve out an additional exception.