Tax Type
Corporation Income Tax
Description
Determination of Exempt Status
Topic
Exemptions
Date Issued
03-31-2000
March 31, 2000
Re: Sec. 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer') for the period January 1995 through July 1997. I apologize for the delay in answering your appeal.
FACTS
The Taxpayer is a Virginia-based government contractor that specializes in computer and engineering support products and services. The property at issue in this case was purchased by the Taxpayer under authority of services contracts with the federal government to design, install, and operate state-of-the-art conference centers primarily for military facilities in Arizona and Hawaii.
The contested property was purchased by the Taxpayer from Virginia vendors and shipped by the Virginia vendors via common carrier directly to the federal government sites outside the Commonwealth. However, the "Ship To' addresses on the invoices were military personnel (and not the Taxpayer) at the military bases.
You maintain that no use of the contested property was made in Virginia and that the contested transactions are exempt sales in interstate commerce.
DETERMINATION
The department has traditionally held that in considering the tax treatment of federal government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. If a contract is for the provision of services, as in this case, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its contractual services, even though title to some or all of the property may pass to the government.
Code of Virginia Sec. 58.1-609.10(4) provides an exemption from the sales and use tax for "[D]elivery of tangible personal property outside the Commonwealth for use or consumption outside the Commonwealth.' Title 23 of the Virginia Administrative Code (VAC) 10-210-780 interprets the exemption and indicates that exempt transactions in interstate commerce include:
The property was shipped by the Virginia vendors to military bases outside of Virginia where the contract work was to be performed. You note that because of security concerns, property shipped to these facilities is scrutinized. Accordingly, and to ensure delivery of the property, the property was shipped to specific officers at the military bases. You note that these specific officers are Points of Contacts for purposes of the contract work performed by the Taxpayer. At the same time, and as addressed above, the property was used or consumed by the Taxpayer to perform the specified services set out in its service contract with the government.
Based on the specific circumstances in this case, l find the contested property was delivered to the Taxpayer outside of Virginia in accordance with VAC 10-210-780. Further, the contested property was for the Taxpayer's use or consumption outside of Virginia as governed by the terms of its contract with the federal government. Accordingly, l find that the sales of the contested items to the Taxpayer are exempt sales in interstate commerce.
I note the entire assessment has been paid. Therefore, the contested portion of the assessment, with interest accrued to date, will be refunded to the Taxpayer. If you have any questions on this issue, please call ***** in the department's Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17785I
Re: Sec. 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer') for the period January 1995 through July 1997. I apologize for the delay in answering your appeal.
FACTS
The Taxpayer is a Virginia-based government contractor that specializes in computer and engineering support products and services. The property at issue in this case was purchased by the Taxpayer under authority of services contracts with the federal government to design, install, and operate state-of-the-art conference centers primarily for military facilities in Arizona and Hawaii.
The contested property was purchased by the Taxpayer from Virginia vendors and shipped by the Virginia vendors via common carrier directly to the federal government sites outside the Commonwealth. However, the "Ship To' addresses on the invoices were military personnel (and not the Taxpayer) at the military bases.
You maintain that no use of the contested property was made in Virginia and that the contested transactions are exempt sales in interstate commerce.
DETERMINATION
The department has traditionally held that in considering the tax treatment of federal government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. If a contract is for the provision of services, as in this case, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its contractual services, even though title to some or all of the property may pass to the government.
Code of Virginia Sec. 58.1-609.10(4) provides an exemption from the sales and use tax for "[D]elivery of tangible personal property outside the Commonwealth for use or consumption outside the Commonwealth.' Title 23 of the Virginia Administrative Code (VAC) 10-210-780 interprets the exemption and indicates that exempt transactions in interstate commerce include:
- The sale of tangible personal property delivered by the seller to a common carrier or to the U.S. Post Office for delivery to the purchaser outside the state.... (Emphasis added)
The property was shipped by the Virginia vendors to military bases outside of Virginia where the contract work was to be performed. You note that because of security concerns, property shipped to these facilities is scrutinized. Accordingly, and to ensure delivery of the property, the property was shipped to specific officers at the military bases. You note that these specific officers are Points of Contacts for purposes of the contract work performed by the Taxpayer. At the same time, and as addressed above, the property was used or consumed by the Taxpayer to perform the specified services set out in its service contract with the government.
Based on the specific circumstances in this case, l find the contested property was delivered to the Taxpayer outside of Virginia in accordance with VAC 10-210-780. Further, the contested property was for the Taxpayer's use or consumption outside of Virginia as governed by the terms of its contract with the federal government. Accordingly, l find that the sales of the contested items to the Taxpayer are exempt sales in interstate commerce.
I note the entire assessment has been paid. Therefore, the contested portion of the assessment, with interest accrued to date, will be refunded to the Taxpayer. If you have any questions on this issue, please call ***** in the department's Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17785I
Rulings of the Tax Commissioner