Virginia Confirms Motor Vehicle Leases of 12 Months or More Are Exempt from Retail Sales Tax, Yet Are Subject to Motor Vehicle Sales and Use Tax

Jan 8th, 2013

The Virginia Department of Taxation released a ruling confirming that motor vehicle leases of 12 months or more are not subject to retail sales and use tax. Instead, the leases are subject to the motor vehicle sales and use tax. Va. Rul. of the Tax Commr. No. 12-206 (Dec. 13, 2012).

The taxpayer that requested the ruling leases motor vehicles on a long term basis--12 months or more. The taxpayer requested the ruling specifically to clarify whether the charges for local personal property tax that it separately states on its customers' billing statements are exempt from tax.

While Virginia exempts motor vehicles from its retail sales and use tax, there are two other taxes that directly relate to motor vehicle leases and rentals. Va. Code Ann. sec. 58.1-609.1 2; see also Va. Code Ann. sec. 58.1-1734, 58.1-2400. First, Virginia imposes a tax on motor vehicle rentals. Va. Code Ann. sec. 58.1-1736 A. But, Virginia specifically excludes leases of 12 months or more from the definition of the term "rental." Va. Code Ann. sec. 58.1-1735. Second, Virginia also imposes its motor vehicle sales and use tax on the sale or use of motor vehicles within the state. Va. Code Ann. sec. 58.1-2402A. As a result, motor vehicle leases of 12 months or more are not subject to either the motor vehicle rental tax or the retail sales and use tax administered by the Department of Taxation, but they are subject to the motor vehicle sales and use tax, which is administered by the Department of Motor Vehicles.

Ultimately, the Commissioner was unable to answer the taxpayer's specific question concerning the treatment of local personal property taxes passed through to lessors as separately stated charges on the billing statements. Due to the fact that the applicable motor vehicle sales and use tax is administered by the Department of Motor Vehicles and not the Department of Taxation, the tax commissioner directed the taxpayer to submit the inquiry to the Department of Motor Vehicles. However, the tax commissioner confirmed that a lease of 12 months or more is subject to the motor vehicle sales and use tax and not subject to retail sales and use tax.