04-109 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

TP not officially designated as the purchasing agent for Exempt Organization

Topic

Appropriateness of Audit Methodology

Collection of Delinquent Tax

Exemptions

Date Issued

09-14-2004

September 14, 2004

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear ****

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period June 1997 through May 2003. I note that the assessment has been paid in full.

FACTS

The Taxpayer is an electrical contractor. The Taxpayer was assessed tax on items of tangible personal property purchased with regard to contracts it had with ***** (the "Agency") and ***** (the "University"). The Taxpayer failed to pay sales tax at the time the purchases were made. You maintain that the Taxpayer relied on the representations of the Agency and the University that the tax was not applicable to the purchases. The Agency and the University each provided the Taxpayer with Form ST-12 as a basis for not paying the tax. Based on these representations, you believe the Taxpayer should receive a refund for the amount of tax paid on the items at issue.

DETERMINATION

Virginia Code § 58.1-610(A) provides, in pertinent part, that a contractor with respect to real estate is the taxable user and consumer of all tangible personal property purchased in connection with the work to be performed.

Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-410(A), a contractor is any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate, and in connection with the furnishing of tangible personal property. 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. The dealer who makes the sale to the contractor must collect the sales tax. No sale should be made to the contractor exempt of the tax on the grounds that the other party to the contract is a governmental agency, a public service corporation, a nonprofit school, or nonprofit hospital.

Title 23 of the Virginia Administrative Code 10-210-410(J) provides that purchases of tangible personal property by contractors in connection with real property contracts with a governmental unit or agency are taxable as purchases for the contractor's own use or consumption. Only in instances where the credit of a governmental entity is bound directly and the contractor has been officially designated as the entity's purchasing agent will the purchases be deemed exempt from the tax. In Public Document 03-75 (10/27/03), the taxpayer purchased tangible personal property pursuant to the requirements of a contract it entered into with a governmental agency. The taxpayer was deemed to be the taxable user or consumer of the property. Additionally, the purchase was not exempt of the tax because the credit of the governmental agency was not bound, and the taxpayer was not officially designated as the agency's purchasing agent.

In this instance, the Taxpayer is a contractor with respect to real estate. Pursuant to the aforementioned references, the Taxpayer is the taxable user or consumer of the purchases made with regard to the contracts with the Agency and the University. Additionally, with regard to the contract with the Agency, there is no evidence that the credit of the Agency was bound, nor that the Taxpayer was an official purchasing agent for the agency. Based on the foregoing, the Taxpayer is liable for the tax due on the purchases. Accordingly, the assessment is correct and the Taxpayer's request for a refund of taxes paid on items purchased pursuant to the contracts at issue is denied.

The Code of Virginia sections, regulations and public document cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/49656P

Rulings of the Tax Commissioner