W. Va. Code R. § 110-26-2h

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-26-2h - Service Business Or Calling

2h.1. Persons engaged in any service business or calling not otherwise specifically taxed under the municipal business and occupation tax law shall report the gross income derived therefrom under the service classification on the municipal business and occupation tax form.

2h.1.1. "Service Business or Calling" shall include all activities engaged in for other persons for a consideration, which involve the rendering of a service as distinguished from the sale of tangible property, but shall not include the services rendered by an employee to his employer. This term shall include persons engaged in manufacturing, compounding or preparing for sale, profit or commercial use, articles, substances or commodities which are owned by another or others, as well as persons engaged as independent contractors in producing natural resource products for persons required to pay the tax imposed under the production classification.

2h.1.2. Persons engaged in the business of television broadcasting and/or radio broadcasting are exempt from tax on gross income derived from advertising services.

2h.2. Services to personal property.

2h.2.1. Where a person renders a service to personal property belonging to others, e.g., mechanics repairing another's automobile, the gross income derived from the work or labor performed in rendering the service shall be reported under the service classification.

2h.2.2. There are many cases where a person in rendering a service, sells tangible personal property, e.g., parts used in automotive repairs. In such instances, the gross income derived from the rendition of the service, usually labor charges, is taxable under the service classification and the gross income derived from the sale of tangible personal property is taxable under the retail or wholesale classification, as the case may be. However, in those cases where the taxpayer renders a service to personal property owned by another and sells personal property to such person to complete the repair of the article, the taxpayer may apportion the gross income between the classifications only if his books and records accurately reflect a separation and if the invoice presented to the customer shows the separation between the services and sales. If the taxpayer fails to maintain adequate records, the entire gross income will be taxed under the service classification and the burden will be upon the taxpayer to prove the proper segregation of receipts.

2h.3. Personal and professional services. -- Personal services and professional services are not exempt from the municipal business and occupation tax, and the gross income from these services must be reported under the service classification.

2h.4. Problems, solutions and examples relating to service businesses or callings. -- Presented below are several examples, problems and solutions thereto regarding the proper taxation of service activities. Any person engaged in any service business or calling within this State not otherwise taxed under the municipal business and occupation tax law is taxable under the service classification. In general service business or calling includes, but is not limited to, advertising agents, appraisers, architects, attorneys, barbers, beauticians, collection agents, court reporters, dentists, doctors, detectives, engineers, employment agents, funeral directors, janitors, kennel operators, laundries, teachers, school operators, laboratory operators, veterinarians, window cleaners, and others. It also includes persons engaged in the business of cleaning, repairing, improving, etc., the personal property of others. The term does not include persons who render services to others in the capacity of employees as distinguished from independent contractors. (See Section 1a of these rules.)

2h.4.1. Example.

AB, a dentist, operating within West Virginia, has gross income derived from repairing teeth and furnishing dentures, bridge work, etc. All of AB's gross income is to be reported under the service classification; because persons such as dentists primarily render professional services and do not make sales. The furnishing of dentures, bridge work, etc., is indispensable to and in furtherance of the professional services rendered by the taxpayer.

If AB should sell dentures to an individual without the dentures being indispensable to or in furtherance of professional dental services rendered to the individual, then the sale would qualify as a sale at retail or wholesale for purposes of this tax. This would certainly be an unusual situation and the burden of proof would be upon the taxpayer to show that such transaction was in no way connected to his primary business of rendering professional services.

2h.4.2. Example.

CD is a funeral director within the municipality and commonly quotes a lump sum price for a standard funeral service, which includes the furnishing of a casket, services, care of the body, funeral coach, preparation of the grave site, flowers, etc. where CD quotes a lump sum price such as twelve hundred dollars ($1,200), which includes both the sale of tangible personal property and the charge for rendition of services, he must separate his gross income and report each portion thereof under the applicable classification. His books and records and invoices to customers must reflect the segregation of receipts or he will be required to report all income under the service classification.

In the instant case, of the twelve hundred dollars ($1,200) lump sum fee, he invoices five hundred dollars ($500) as sales of property and seven hundred dollars ($700) as his fee for services rendered. Therefore, he may report five hundred dollars ($500) under the retail classification and seven hundred dollars ($700) under the service classification.

2h.4.3. Example.

RE, a licensed real estate broker within the municipality, accepts a listing to sell an office building for the owner. Upon sale of the building, RE will receive seven percent (7%) of the selling price as his commission. RE employs XY, a license real estate salesman (not a broker). XY is to receive twenty percent (20%) of RE's commission for any realty he sells which is listed by the broker. XY finds a purchaser for the office building listed by the broker and the agreed upon sales price is eight hundred thousand dollars ($800,000). The broker's commission from the owner is fifty-six thousand dollars ($56,000) (seven percent (7%) X eight hundred thousand dollars ($800,000) ' fifty-six thousand dollars ($56,000)). The broker pays XY a commission of eleven thousand, two hundred dollars ($11,200) (twenty percent (20%) X fifty-six thousand dollars ($56,000) ' eleven thousand two hundred dollars ($11,200).

The broker will report his entire commission fifty-six thousand dollars ($56,000) with no deductions whatsoever under the service classification. The real estate salesman (XY) is liable for municipal business and occupation tax on his income only if he is an independent real estate salesman and is not an employee of the broker. Real estate salesman licensed under W. Va. Code '47-12-1 et seq. are subject to specific regulatory controls. Consequently, regardless of how they may be classified for other purposes, licensed real estate salesmen are considered employees of brokers for purposes of the municipal business and occupation tax and are not taxable on their activities on behalf of brokers.

W. Va. Code R. § 110-26-2h