Virginia Rules That Separate Charges for Photo Booth Rentals in Party Services Contract Were Taxable

September 27, 2020

When vendors sell property and services for a single price or pursuant to a single contract, it is important to understand the sales tax implications and how the “true object” test may or may not apply, as explained in this Virginia tax ruling.

By:  Betsy Tuck, SALT Manager

In a recent Virginia tax ruling addressing a taxpayer’s appeal of a sales and use tax assessment, the Virginia Tax Commissioner (Commissioner) provided guidance regarding the application of the “true object” test where services and tangible property are provided under one contract.[1]

The taxpayer provides party entertainment services including disc jockey, photo booth rentals and other services and rental equipment, with each service and rental listed as a separate line item. The taxpayer was audited and assessed sales tax on the photo booth rentals when either provided separately or in conjunction with other entertainment services.

In Virginia, the gross receipts from rentals of tangible personal property are taxable.[2] Meanwhile the gross receipts from “professional, insurance or personal service transactions which involve sales [of tangible personal property or taxable services] as inconsequential elements for which no separate charges are made” are exempt from sales tax.[3]

Many states provide a “true object” or other similar test to determine the taxability of transactions which include both exempt services and taxable sales.

In Virginia, the true object test looks at the following:

If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.[4]

The taxpayer in this case argued that the true object of their service is providing disc jockey and entertainment services to enhance the event and the rental of photobooths merely are provided to facilitate the overall object of those services. They explain that the customer first selects a disc jockey that compliments the event type and then the taxpayer offers other enhancements such as lighting or photo booth rentals. In the end, one single contract is signed which includes separate line items for the disc jockey services and other enhancements.

The Commissioner disagreed with the taxpayer’s position, concluding that the true object test does not apply in this case. The Commissioner noted that the photo booth rentals are separately stated and that the rental price is similar to the price for the disc jockey or other services, thus supporting the view that the photo booth rentals are not inconsequential elements of the exempt services.  In addition, the photo booth rentals are not sufficiently related to the disc jockey services, as evidenced by the fact that the taxpayer offers contracts in which only photo booth rentals were provided without any service at all. Accordingly, the Commissioner concluded that the separately stated services are tax-exempt, while the separately stated rentals are taxable.

Does your company provide both services and tangible personal property as part of the same transaction? Whether the charges are stated separately or are lumped together for one non-itemized price, these transactions often present challenging sales and use tax issues.  Aprio’s SALT team is experienced with issues such as these and can assist your business to ensure that it remains in compliance with its sales and use tax obligations and does not incur unexpected liabilities and penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Betsy Tuck, SALT Manager at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the September 2020 SALT Newsletter.

[1] Virginia P.D. 20-101 (June 16, 2020).

[2] Virginia Code § 58.1-603

[3] Virginia Code § 58.1-609.5

[4] VAC 10-210-4040

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