Tax Type
Retail Sales and Use Tax
Description
Chemical applicator contractor for state highway department
Topic
Exemptions
Property Subject to Tax
Date Issued
03-13-2001
March 13, 2001
Re: Request for Ruling: Sales and Use Tax
Dear ****
This is in response to your letter of December 11, 2000, requesting a ruling on the application of the retail sales and use tax to pesticides purchased by **** (the "Taxpayer") for use in contracts with state agencies in Virginia. Copies of cited sources are enclosed.
FACTS
Based on the information presented, the Taxpayer is an out-of-state company engaged as a contract pesticide applicator for state highway departments. The Taxpayer takes exception to the application of the sales and use tax to pesticides, herbicides, insecticides and other chemicals which it bought for use under a contract. The Taxpayer maintains that the tax should not apply to the materials since a state agency is a party to the contract.
RULING
Contract for Weed and Vegetation Control
In Virginia, retail sales of chemicals are generally taxable, except when the sale is to an exempt buyer, such as a state or local government agency of Virginia. In contrast, any person who buys chemicals for use or consumption in rendering services is required to pay the tax on such chemicals at the time of purchase. See Title 23 of the Virginia Administrative Code ("VAC") 10-210-300.
In considering the tax treatment of government contracts, it must be determined whether the true object of the contract is for the provision of services to the government or for the sale of tangible personal property. If a contract is for the sale of tangible personal property, the contractor may purchase items under resale certificates of exemption and then resell those items to the government exclusive of the tax, pursuant to Code of Virginia § 58.1-609.1(4). However, if the contract is for the provision of services, and in connection with those services tangible personal property is provided, the contractor is deemed to be the taxable user or consumer of all of the personal property used in performing the services and must pay the tax on the purchases, even though title to the property provided may pass to the government. See 23 VAC 10-210-693.
I would also note that 23 VAC 10-210-610(C) holds that "any... contractor who... contracts... to provide periodic fertilizing or weed killing treatments is deemed to be a consumer of all tangible personal property used in performing such service and must pay the tax on such property at the time of purchase . . . ." [Emphasis added.]
The Scope of Work for the contract at issue requires the Taxpayer to: (1) supply multiple crews; and (2) apply herbicides, insecticides, fungicides and adjuvants by a variety of means, including a truck equipped with a computerized chemical injection and dispensing system, a pickup truck equipped with a skid sprayer, backpack sprayers or by-hand/mechanical broadcasting of granulars. In addition, the contract requires the Taxpayer to use materials supplied by the state and materials provided by the Taxpayer to perform the services required under the contract.
Based on these facts and the established policies noted above, I must conclude that the true object of the Taxpayer's contract is for the provision of pesticide application services to control weeds and insects along roadways. Therefore, the Taxpayer is the user and consumer of all items purchased in providing its contracted services and must either pay the tax to its suppliers at the time of purchase or remit use tax directly to the department based on the cost price of such items.
Chemicals Used by State Agency
It is my understanding that state agencies of Virginia buy chemicals from the Taxpayer for their use. Provided the sale is made independent of a service contract (i.e., the chemicals are not for use under the Taxpayer's service contract), the Taxpayer may buy and resell such chemicals exempt of the tax once it is registered as a dealer with the Virginia Department of Taxation. I have enclosed Form R-1 for this purpose.
Out-of-state Vendors
It is also my understanding that the Taxpayer buys chemicals from out-of-state vendors for use in its Virginia service contracts. If no Virginia retail sales or use tax is charged by the out-of-state vendor, the Taxpayer is required to remit the Virginia use tax to the Virginia Department of Taxation. The use tax is computed on the cost price of tangible personal property purchased for use or consumption by the Taxpayer in Virginia.
I trust that the foregoing answers your questions. If you have any questions about this ruling, please contact **** at the department's Office of Tax Policy at ****.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/32111R
Re: Request for Ruling: Sales and Use Tax
Dear ****
This is in response to your letter of December 11, 2000, requesting a ruling on the application of the retail sales and use tax to pesticides purchased by **** (the "Taxpayer") for use in contracts with state agencies in Virginia. Copies of cited sources are enclosed.
FACTS
Based on the information presented, the Taxpayer is an out-of-state company engaged as a contract pesticide applicator for state highway departments. The Taxpayer takes exception to the application of the sales and use tax to pesticides, herbicides, insecticides and other chemicals which it bought for use under a contract. The Taxpayer maintains that the tax should not apply to the materials since a state agency is a party to the contract.
RULING
Contract for Weed and Vegetation Control
In Virginia, retail sales of chemicals are generally taxable, except when the sale is to an exempt buyer, such as a state or local government agency of Virginia. In contrast, any person who buys chemicals for use or consumption in rendering services is required to pay the tax on such chemicals at the time of purchase. See Title 23 of the Virginia Administrative Code ("VAC") 10-210-300.
In considering the tax treatment of government contracts, it must be determined whether the true object of the contract is for the provision of services to the government or for the sale of tangible personal property. If a contract is for the sale of tangible personal property, the contractor may purchase items under resale certificates of exemption and then resell those items to the government exclusive of the tax, pursuant to Code of Virginia § 58.1-609.1(4). However, if the contract is for the provision of services, and in connection with those services tangible personal property is provided, the contractor is deemed to be the taxable user or consumer of all of the personal property used in performing the services and must pay the tax on the purchases, even though title to the property provided may pass to the government. See 23 VAC 10-210-693.
I would also note that 23 VAC 10-210-610(C) holds that "any... contractor who... contracts... to provide periodic fertilizing or weed killing treatments is deemed to be a consumer of all tangible personal property used in performing such service and must pay the tax on such property at the time of purchase . . . ." [Emphasis added.]
The Scope of Work for the contract at issue requires the Taxpayer to: (1) supply multiple crews; and (2) apply herbicides, insecticides, fungicides and adjuvants by a variety of means, including a truck equipped with a computerized chemical injection and dispensing system, a pickup truck equipped with a skid sprayer, backpack sprayers or by-hand/mechanical broadcasting of granulars. In addition, the contract requires the Taxpayer to use materials supplied by the state and materials provided by the Taxpayer to perform the services required under the contract.
Based on these facts and the established policies noted above, I must conclude that the true object of the Taxpayer's contract is for the provision of pesticide application services to control weeds and insects along roadways. Therefore, the Taxpayer is the user and consumer of all items purchased in providing its contracted services and must either pay the tax to its suppliers at the time of purchase or remit use tax directly to the department based on the cost price of such items.
Chemicals Used by State Agency
It is my understanding that state agencies of Virginia buy chemicals from the Taxpayer for their use. Provided the sale is made independent of a service contract (i.e., the chemicals are not for use under the Taxpayer's service contract), the Taxpayer may buy and resell such chemicals exempt of the tax once it is registered as a dealer with the Virginia Department of Taxation. I have enclosed Form R-1 for this purpose.
Out-of-state Vendors
It is also my understanding that the Taxpayer buys chemicals from out-of-state vendors for use in its Virginia service contracts. If no Virginia retail sales or use tax is charged by the out-of-state vendor, the Taxpayer is required to remit the Virginia use tax to the Virginia Department of Taxation. The use tax is computed on the cost price of tangible personal property purchased for use or consumption by the Taxpayer in Virginia.
I trust that the foregoing answers your questions. If you have any questions about this ruling, please contact **** at the department's Office of Tax Policy at ****.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/32111R
Rulings of the Tax Commissioner