Tax Type
Retail Sales and Use Tax
Description
Waste waster system maintenance; Withdrawals from inventory; Real property maintenance
Topic
Property Subject to Tax
Date Issued
03-21-2001
March 21, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to services provided by **** (the "Taxpayer"). I apologize for the delay in our response.
FACTS
The Taxpayer provides waste water management services to restaurants, supermarkets, caterers and other similar businesses. The Taxpayer manufactures a bacteria and enzyme product which is sold in connection with a monthly maintenance service provided to customers. Occasionally, the Taxpayer will sell its bacteria and enzyme product and/or other tangible personal property directly to its customer. The Taxpayer charges the applicable sales tax on such sales of tangible personal property.
Under the service program, the Taxpayer will maintain the customer's waste water system to keep it in working order. The maintenance includes replacement of the bacteria and enzyme product, bio-treatment of floor drains, inspection and/or cleaning of grease traps and snaking drain lines when clogged. The Taxpayer charges a monthly fee for its service, which includes labor and materials. The Taxpayer seeks clarification whether 50% of the total charge for the waste water maintenance contract, which provides both parts and labor, is subject to the tax.
RULING
Maintenance of Waste Water System
Code of Virginia § 58.1-610(A) provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. Title 23 of the Virginia Administrative Code (VAC) 10-210-410 further provides that "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."
Because the materials furnished constitute services to real property fixtures, the Taxpayer is a real property contractor, not a retailer, with respect to the maintenance of the waste water system. As such, the Taxpayer does not collect the sales tax from its customer but instead pays the tax on its purchases of materials used in the maintenance of the waste water system.
Withdrawals from Resale Inventory
The Taxpayer manufacturers a bacteria and enzyme product that is sold at retail to customers. Title VAC 10-210-410(D) provides that a person who principally contracts to perform services with respect to real property construction contracts shall apply the tax based on the fabricated cost price of the personal property withdrawn from an exempt resale inventory that is used in such real property construction contracts. Fabricated cost price is computed by totaling the cost of materials, labor, and overhead charged to work in process. If the Taxpayer withdraws the bacteria and enzyme product from an exempt sales inventory for use in the maintenance of a real property contract, then the use tax must be paid on the fabricated cost of the product.
I trust the foregoing answers your questions. However, if you have a question about this response, please contact **** in the Office of Tax Policy at ****.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/29130T
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to services provided by **** (the "Taxpayer"). I apologize for the delay in our response.
FACTS
The Taxpayer provides waste water management services to restaurants, supermarkets, caterers and other similar businesses. The Taxpayer manufactures a bacteria and enzyme product which is sold in connection with a monthly maintenance service provided to customers. Occasionally, the Taxpayer will sell its bacteria and enzyme product and/or other tangible personal property directly to its customer. The Taxpayer charges the applicable sales tax on such sales of tangible personal property.
Under the service program, the Taxpayer will maintain the customer's waste water system to keep it in working order. The maintenance includes replacement of the bacteria and enzyme product, bio-treatment of floor drains, inspection and/or cleaning of grease traps and snaking drain lines when clogged. The Taxpayer charges a monthly fee for its service, which includes labor and materials. The Taxpayer seeks clarification whether 50% of the total charge for the waste water maintenance contract, which provides both parts and labor, is subject to the tax.
RULING
Maintenance of Waste Water System
Code of Virginia § 58.1-610(A) provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. Title 23 of the Virginia Administrative Code (VAC) 10-210-410 further provides that "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."
Because the materials furnished constitute services to real property fixtures, the Taxpayer is a real property contractor, not a retailer, with respect to the maintenance of the waste water system. As such, the Taxpayer does not collect the sales tax from its customer but instead pays the tax on its purchases of materials used in the maintenance of the waste water system.
Withdrawals from Resale Inventory
The Taxpayer manufacturers a bacteria and enzyme product that is sold at retail to customers. Title VAC 10-210-410(D) provides that a person who principally contracts to perform services with respect to real property construction contracts shall apply the tax based on the fabricated cost price of the personal property withdrawn from an exempt resale inventory that is used in such real property construction contracts. Fabricated cost price is computed by totaling the cost of materials, labor, and overhead charged to work in process. If the Taxpayer withdraws the bacteria and enzyme product from an exempt sales inventory for use in the maintenance of a real property contract, then the use tax must be paid on the fabricated cost of the product.
I trust the foregoing answers your questions. However, if you have a question about this response, please contact **** in the Office of Tax Policy at ****.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/29130T
Rulings of the Tax Commissioner