Tax Type
Retail Sales and Use Tax
Description
Real Property Costruction Services
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
10-26-2001
October 26, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter of July 9, 2001, requesting correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit.
FACTS
The Taxpayer is a real property contractor that fabricates and installs structural precast concrete components to erect parking garages and other structures. An audit for the period August 1997 through July 2000 resulted in the assessment of use tax on untaxed purchases of tangible personal property and fabrication services used or consumed in its operations. The only contested issue in this case is the assessment associated with the Taxpayer's purchase of welding services.
It is my understanding that the precast concrete members are fabricated with steel plates embedded into them. After these members are put into their permanent resting-places at the job site, the plates on opposing members are welded together. A subcontractor does the welding. You maintain that the subcontract welder performed no on-site fabrication that changes the form or shape of any property. Rather, you indicate that the welds became an integral part of the real property structure under construction.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-560 defines taxable "fabrication" to mean "an operation which changes the form or state of tangible personal property" and further provides that "the tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work." [Emphasis added.]
In this case, welding is being done on concrete panels that have been installed as real property and that have lost their identity as tangible personal property. Accordingly, the welding subcontractor is providing services to real property (and not to tangible personal property). Title 23 VAC 10-210-410 sets out the basic rules for real property contractors and provides, in subsection A, the following:
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- A contractor is defined as any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon,. . . and in connection therewith to furnish tangible personal property, whether such person be a prime contractor or subcontractor. Unless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts. (Emphasis added.)
Charges for real property construction services (ie: such as the welding services at issue in this case) are not taxable. Therefore, the contested assessment bill will be abated in its entirety.
If you have any questions about this response, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/35851R
Rulings of the Tax Commissioner