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Combination Sales Activity – Value Added Tax (VAT) & Business Tax (BT)
Certain sales activities may include a combination of both the sale of good and the sale of services.  The nature of the business will determine the tax treatment, but instances where the distinguishing the two is complex, State Administration of Taxation (SAT) approval should be sought.  An example of such a combination would be were a firm is contracted to build a production line, which includes the mechanical equipment for the line and the labor service to install it.  When an organization derives over 50% of its annual revenue from the wholesale, retail or production of goods, it is deemed to be a VAT taxpayer.  By default, when an organization derives over 50% of its annual revenue from labor services, it is a BT taxpayer.  If however, a taxpayer can properly separate and account for a combination of sales activities, SAT can allow for both BT and VAT to be applied to the respective activities.  This treatment can certainly be of benefit, as VAT is generally applied at 17%, where as BT is generally applied at 5%.