Tax Type
Retail Sales and Use Tax
Description
Maritime/port related security system projects; tangible personal property
Topic
Exemptions
Date Issued
10-15-2003
October 15, 2003
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter of August 6, 2003, submitted on behalf of ***** (the "Taxpayer"), requesting a ruling on the application of the retail sales and use tax to a contract the Taxpayer has signed with an agency of the Commonwealth of Virginia.
FACTS
The Taxpayer has signed a contract with the Virginia Port Authority, an agency of the Commonwealth of Virginia (the "Agency"). The contract calls for the planning, integration and implementation of a wide variety of maritime and port related security system projects. You request a ruling as to whether the Taxpayer can purchase tangible personal property exempt of the tax under this contract.
RULING
The application of the tax to government contracts is set out in Title 23 of the Virginia Administrative Code (VAC) 10-210-693. This regulation indicates that the tax treatment is based on whether the contract is for the sale of tangible personal property or for the provision of services.
If a particular contract involves both the provision of services and the transfer of tangible personal property, the Department relies on the true object test set out in 23 VAC 10-210-4040 to determine whether the contract constitutes a sale of tangible personal property or the provision of a service. If the true object of the 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 those services, even though title to some or all of the property may pass to the government, or the contractor may be fully and directly reimbursed by the government, or both. Conversely, if the true object of the contract is for the sale of tangible personal property to the government, the contractor may purchase such property exempt from the tax under a resale exemption certificate. The subsequent sale of the property to the government is exempt from the tax under Va. Code § 58.1-609.1(4).
Further, the Department generally considers an entire contract, including any purchase orders, delivery orders or task directives issued with or separate from the original contract, as one transaction that is either taxable (for the provision of services) or exempt (for the procurement and sale of property). For example, a work order might be issued that calls for the delivery of computer hardware. If the true object of the underlying contract is for the provision of services, the contractor's purchase of the computer hardware is taxable. This is because the work order is not a separate contract.
Article 2 (Scope of Services) of the contract requires the Taxpayer to provide services associated with the planning, integration and implementation of maritime and port security systems projects. Accordingly, the contract is for the provision of a nontaxable service. Pursuant to the aforementioned references, the Taxpayer is deemed to be the taxable user and consumer of all tangible personal property used in providing the service and must pay the tax on such property at the time of purchase.
Virginia Code § 58.1-609.1(10) provides an exemption from the tax for tangible personal property used in and about a marine terminal under the supervision of the Virginia Port Authority for handling cargo, merchandise, freight and equipment. The statute further provides an exemption for agents, lessees, sublessees or users of tangible personal property owned by or leased to the Virginia Port Authority. Based on the terms of the contract, the Taxpayer will not be using tangible property for handling cargo, merchandise, freight and equipment, nor will such property be used in the operation of a marine terminal. Accordingly, the exemption is not applicable in this instance.
The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
-
-
-
-
-
-
AR/47566P
Rulings of the Tax Commissioner