Tax Type
Retail Sales and Use Tax
Description
Airport Baggage Handling Systems
Topic
Property Subject to Tax
Date Issued
10-17-2001
October 17, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you request a ruling on the application of the retail sales and use tax to a specific contract between ***** (the "Taxpayer") and the ***** (the "Authority"). The Authority is a government entity for purposes of the Virginia Retail Sales and Use Tax.
FACTS
The Taxpayer is an out-of-state manufacturer of baggage handling conveyor systems for the airline industry. The Taxpayer entered into a subcontract agreement with the Authority to furnish equipment, materials, supplies, and labor to install a baggage handling conveyor system at the Washington Dulles International Airport. This baggage handling system consists of conveyor lines that are used for the loading and unloading of passenger luggage. You indicate that the conveyor systems are attached to the floors in the airport using bolts, concrete anchors and clamps. You maintain that the conveyor systems are not permanently attached to realty because the airports are constantly rerouting the conveyors to meet the needs of the airlines and the airport.
The Taxpayer requests a ruling to confirm its understanding that the baggage handling system is tangible personal property and may be sold to the Authority exempt of the tax under Code of Virginia § 58.1-609.1(4).
RULING
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, 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.
Conversely, if a contract is for the sale of tangible personal property to the government, the contractor may purchase such property exempt of the tax under resale certificates of exemption. The subsequent sale of the property to the government is exempt of the tax under Code of Virginia § 58.1-609.1(4).
As addressed in Public Document 98-182 (10/30/98), the resale exemption applies to tangible personal property title to which passes to the government. However, the exemption does not apply to items used by the Taxpayer in performance of the contract. Further, the resale exemption does not apply to tangible personal property installed by the Taxpayer that becomes realty upon installation. See Public Documents 93-99 (4/12/93) and 93-201 (9/27/93).
Based on the information you provided, the baggage handling system is not intended to become a permanent fixture and remains tangible personal property upon installation. Accordingly, the Taxpayer's contract with the Authority is for the sale of tangible personal property. The Taxpayer may purchase such property, title to which passes to the Authority, exempt from Virginia sales tax using resale exemption certificates. The subsequent sale of the property to the Authority is exempt under Code of Virginia § 58.1-609.1(4).
Please note that the Taxpayer is the taxable user and consumer of all supplies and equipment used in connection with the contract for which title does not pass to the government (e.g., supplies and tools used in installing the baggage handling system).
If you have any questions regarding this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
ARO/35332T
Rulings of the Tax Commissioner