Tax Type
Retail Sales and Use Tax
Description
Government contractor engaged in providing consulting services
Topic
Appropriateness of Audit Methodology
Assessment
Date Issued
06-10-2005
June 10, 2005
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter requesting correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period February 2000 through December 2000. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a government contractor engaged in providing consulting services. An audit by the Department resulted in the assessment of tax on purchases of tangible personal property. The Taxpayer has paid the tax and interest on the noncontested items.
The Taxpayer contests the tax assessed on materials purchased in connection with Delivery Order 15 issued under an indefinite delivery, indefinite quantity ("ID/IQ") contract. Because the contested delivery order was issued under an ID/IQ contract, the Taxpayer maintains that the true object test should apply to the individual delivery orders, as allowed in Public Document (P.D.) 01-6 (01/04/01) for ID/IQ contracts issued under the authority of the Federal Systems Integration and Management Center ("FEDSIM"). The contested contract is not issued under the authority of FEDSIM.
The Taxpayer further disputes the auditor's characterization of the delivery order as a service order. If the true object test is permitted to apply to the individual delivery orders in the instant contract, the Taxpayer maintains that true object of the contested delivery order was effectively amended from a service order to one for the sale of tangible personal property. As such, the resale exemption should apply to the contested materials.
The Taxpayer also maintains that no tangible personal property was delivered to the federal government in Virginia in connection with the contested contract.
DETERMINATION
Based on the stated scope of work and other terms set out in the contract, the Taxpayer is not obligated to perform any specific duties or furnish any property. Rather, the Taxpayer is required to furnish services or property only when a task or delivery order is issued to the Taxpayer under the contract. For example,
· Contract clause C.2 in the scope of work states, "the selected contractors will furnish all necessary services, qualified personnel, material, equipment and facilities not otherwise provided by the Government as needed to perform one or more individual tasks, as to be later specified in specific task orders." [Emphasis added.]
· Contract clause H.4 in the ordering procedures provides that "[t]he order will be given to the contractor whose proposal offers the greatest value to the Government, price and technical factors considered."
· Contract clause I.61 requires "Any supplies and services to be furnished under this contract shall be ordered by issuance of delivery orders or task orders by the individuals or activities designated in the Schedule."
· Contract clause I.63 sets out that "Delivery or performance shall be made only as authorized by orders issued in accordance with the Ordering clause. The Contractor shall furnish to the Government, when and if ordered, the supplies or services specified in the Schedule . . . ." [Emphasis added.]
Because the contested ID/IQ contract does not definitely declare the required duties of the Taxpayer, it is impossible to determine the true object of the overall contract. For these reasons, I find a basis to apply the tax in the same manner as in P.D. 01-6. Accordingly, the application of the sales and use tax in this case will be based on individual delivery orders or task orders and not on the underlying prime contract.
In this case, the true object of the Delivery Order 15 as initially issued is for services. This delivery order, however, was significantly amended within a month of issuance to require the Taxpayer to furnish tangible personal property to the government. Because the amendment occurred so close to the original issuance of the order and so significantly changed the purpose of the order, I find a basis for applying the true object of the amended delivery order back to the original date of issuance.
The true object of Delivery Order 15, as amended, is the procurement of tangible personal property. Therefore, all tangible personal property purchased by the Taxpayer for resale purposes only to the government under Delivery Order 15 qualifies for the resale exemption. The subsequent sale of such property to the federal government is also exempt from the tax based on Va. Code § 58.1-609.1 4.
Based on this determination and because the noncontested portion of the assessment has been paid, the remaining (unpaid) balance of the assessment representing the contested portion will be abated. For this reason, the out-of-state delivery issue raised in your letter need not be addressed.
This determination treats the contract at issue as an ID/IQ contract based on the specific wording of the contract language. This determination is limited to the specific facts of this case and has no application to any other government contracts.
The regulation and the public document cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.policylibrary.tax.virainia.gov. If you have any questions about this determination, you may contact ********** in the Department's Office of Policy and Administration, Appeals and Rulings, at ************.
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- Sincerely,
Kenneth W. Thorson
Tax Commissioner
- Sincerely,
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AR/47149R
Rulings of the Tax Commissioner