Bulletin Number
VTB 00-3
Tax Type
Retail Sales and Use Tax
Description
New reduced tax treatment for modular buildings
Topic
Basis of Tax
Credits
Date Issued
06-20-2000
RETAIL SALES AND USE TAX:
NEW REDUCED TAX TREATMENT FOR MODULAR BUILDINGS
EFFECTIVE JULY 1, 2000
The 2000 General Assembly passed legislation (House Bill 1094, Chapter 425, 2000 Acts of Assembly) to reduce the taxable base for applying the retail sales and use tax on retail sales of certain modular buildings, including certain types of modular housing. Effective July 1, 2000, the taxable base of modular buildings sold at retail will change from 100% to 60% of the sales price. A sale at retail occurs when a modular building is sold without installation to the final consumer. In other words, the seller does not furnish or arrange for any installation services. This legislation also provides a new tax credit on the sales and use tax return applicable only to modular housing manufacturers.
Example of New Taxable Base: On August 2, 2000, a modular building is sold at retail to a real property construction contractor for $40,000. The sales tax due is $1,080 ($40,000 x 60% x 4.5%).
New Statutory Definitions: To clarify the scope of this legislation, new statutory definitions have been added for modular building, modular building manufacturer, and modular building retailer.
Application: This legislation applies to modular buildings comprised of one or more sections, substantially built in a factory setting to comply with the Virginia Industrialized Building Safety Law, and transported to the site of final assembly to be affixed to a permanent foundation. This legislation does not apply to "mobile offices" as defined in Code of Virginia § 58.1-2401 or to "manufactured homes" (formerly known as "mobile homes") as defined in Code of Virginia § 36-85.3. The provisions of this legislation also do not apply to open-wall panelized housing, stick-built or conventional housing, log home packages, post and beam housing packages, or other types of building construction which do not satisfy all of the criteria of the "modular building" definition provided by this legislation.
Modular Building Manufacturers - Retail Sales: When a modular building manufacturer builds, sells and delivers modular housing sections to a real property construction contractor who performs the installation of the modular units, the transaction constitutes a retail sale of tangible personal property (since the sale is to the final consumer). In such instances, the tax applies to 60% of the sales price of the modular housing as charged by the modular building manufacturer if the sale occurs on or after July 1, 2000. The manufacturer must collect the sales tax if registered to collect the sales tax. If the manufacturer is not registered, then the contractor must report and pay the Virginia consumer use tax to the department based on 60% of the manufacturer's retail sales price.
Purchases by Modular Building Retailers: An exempt resale transaction occurs when a modular building retailer buys a modular building from a modular building manufacturer for resale purposes only. In such instances, the retailer must provide the manufacturer with a completed resale exemption certificate, Form ST-10. When the retailer sells such modular building at retail, it must charge and collect the sales tax from the purchaser based on 60% of the retailer's sales price. For example, the manufacturer sells a modular building to a retailer for $40,000. Assuming the retailer furnishes a resale exemption certificate, no tax is due on the transaction between the manufacturer and the retailer. The retailer resells it to a final consumer for $50,000. The retailer must collect sales tax of $1,350 ($50,000 x 60% x 4.5%).
When a modular building retailer buys a modular building at retail and will install the modular building onto a permanent foundation himself, the retailer is deemed the final consumer of the modular building and must pay the sales or use tax based on 60% of the retailer's cost for the modular building. For example, a manufacturer sells a modular building at retail to a modular building retailer/installer for $45,000. The sales or use tax due is $1,215 ($45,000 x 60% x 4.5%).
Modular Building Manufacturers - Contracts to Furnish and Install: When a modular building manufacturer contracts to build, sell, deliver, and install a modular building, the manufacturer is deemed a real property construction contractor. Under these conditions, the manufacturer is deemed the final taxable consumer of the materials incorporated into a modular building. The new legislation has no affect on the taxable charge for prefabricated components and other materials purchased by modular building manufacturers who contract to furnish and install a modular building onto a permanent foundation. In these instances, purchases of prefabricated materials remain subject to the sales and use tax based on 100% of the sales price charged by the vendors of such materials. Examples of prefabricated materials are doors, windows, trusses, appliances, wiring, lumber, ductwork, plumbing, etc.
New Tax Credit: A new tax credit is available only for modular building manufacturers under the following conditions: (1) the manufacturer sells a modular building at retail or wholesale (i.e., sells it without installation), and (2) the manufacturer has paid sales or use tax on the cost price of materials incorporated into the modular building. In such instances, the manufacturer must charge and collect the sales tax based on 60% of the retail sales price and may claim a credit against such tax collection on its sales and use tax return for the amount of sales or use tax paid on the cost of materials for this sale. CAUTION: This new tax credit may not be taken when the modular building manufacturer has contracted to sell and install a modular building.
Transitional Provisions: The reduced basis will apply to retail sales of modular buildings which are invoiced or billed beginning July 1, 2000, as shown in the following examples:
_ EXAMPLE 1: On June 30, 2000, a modular building retailer sells at retail a modular building for $50,000 to a Contractor. Because the modular building is invoiced prior to July 1, 2000, the retailer must charge the tax on 100% of the retail sales price. Accordingly, the retailer charges sales tax of $2,250.00 ($50,000 sales price x 4.5% tax rate = $2,250.00).
_ EXAMPLE 2: The same transaction as above; however, the modular building is sold at retail to a Contractor on July 1, 2000 or later. In this case, the retailer must charge the tax on 60% of the retail sales price. Accordingly, the retailer charges the Contractor for sales tax of $1,350.00 ($50,000 sales price x 60% reduced basis x 4.5% tax rate = $1,350.00).
If you have any questions concerning the new tax treatment for modular buildings effective on and after July 1, 2000, please contact the department's Office of Tax Policy at (804) 367-8010.
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