Document Number
06-104
Tax Type
Retail Sales and Use Tax
Description
Modular units sold should be treated as subject to the retail sales and use tax
Topic
Collection of Tax
Property Subject to Tax
Date Issued
10-05-2006


October 5, 2006


Re: Request for Ruling: Retail Sales and Use Tax


Dear *****:

This is in response to your letter in which you request a ruling on the application of the retail sales and use tax to modular office buildings sold, leased or rented by ***** (the "Taxpayer").

FACTS


You represent that the Taxpayer is a North Carolina dealer that sells commercial (not residential) modular office buildings to schools, churches, doctor's offices, etc. The Taxpayer does not manufacture the buildings. Rather, it purchases them from a manufacturer and sells them at retail to customers. The Taxpayer hires subcontractors to transport and set up these buildings.

The Taxpayer has a certificate of authority from the Virginia State Corporation Commission to transact business in Virginia and is in the process of opening a sales office in Virginia. The Taxpayer holds a Class A General Contractor's License in Virginia. The Taxpayer anticipates selling more than twelve buildings per year in Virginia.

The Taxpayer contends that its sale of a modular building is similar to the sale of a car, i.e., the customer receives title or a certificate of origin issued by the manufacturer upon full payment of the building. It is the Taxpayer's contention that it should not be responsible for collecting tax on its sales transactions. Instead, the sales and use tax should be collected by the Department of Motor Vehicles ("DMV") when the customer registers the building.

RULING


Under Virginia tax law, modular buildings as defined by Va. Code § 58.1-602 are subject to the retail sales and use tax administered by the Department of Taxation. Mobile offices as defined by Va. Code § 58.1-2401 are subject to the motor vehicle sales and use tax administered by DMV.

Mobile Offices

Virginia Code § 58.1-2402 imposes the motor vehicle sales and use tax upon mobile offices as defined by Va. Code § 58.1-2401:
    • "Mobile office" shall mean an industrialized building unit not subject to the federal regulation, which may be constructed on a chassis for the purpose of towing to the point of use and designed to be used with or without a permanent foundation, for commercial use and not for residential use; or two or more such units separately towable, but designed to be joined together at the point of use to form a single commercial structure, and which may be designed for removal to, and installation or erection on other sites.

With your letter, you submit a copy of a certificate of origin from a manufacturer of custom modular buildings and mobile offices. On the certificate, the manufacturer describes the body type as a mobile office trailer and refers to the trailer as a vehicle. While this trailer may in fact be considered a mobile office as defined in Va. Code § 58.1-2401, the determination of whether such trailer is a mobile office as defined under Va. Code § 58.1-2401 must be made by DMV. Therefore, the Taxpayer should contact DMV at Post Office Box 27412, Richmond, Virginia 23269, for a ruling.

If DMV rules that any of the modular units sold or leased and installed by the Taxpayer constitute mobile offices for purposes of Va. Code § 58.1-2401, set-up materials would be taxable in accordance with Public Documents 91-125 (7/19/91) and 98-100 (5/22/98), which address the taxation of set-up materials for mobile homes.

Modular Buildings

Virginia Code §§ 58.1-603, 58.1-604, 58.1-605, and 58.1-606 impose the retail sales and use tax upon tangible personal property sold, used, consumed, rented, leased, stored or distributed in Virginia. Virginia Code § 58.1-610.1 is a special provision for the taxation of modular buildings and provides, in part, the following:

    • The retail sale of a modular building, as defined by § 58.1-602, by a modular building manufacturer or modular building retailer, as defined by § 58.1-602, shall be subject to the tax authorized by this chapter upon sixty percent of the retail sales price.
    • Virginia Code § 58.1-602 defines a modular building as follows:
    • "Modular building" means, but shall not be limited to, single and multifamily houses, apartment units, commercial buildings, and permanent additions thereof, comprised of one or more sections that are intended to become real property, primarily constructed at a location other than the permanent site, built to comply with the Virginia Industrialized Building Safety Law (§ 36-70 et seq.) as regulated by the Virginia Department of Housing and Community Development, and shipped with most permanent components in place to the site of final assembly. For purposes of this chapter, a modular building shall not include a mobile office as defined in § 58.1-2401 or any manufactured building subject to and certified under the provisions of the National Manufactured Housing Construction and Safety Standards Act of 1974 42 U.S.C. § 5401 et seq.). [Emphasis added.]

The statutory definition of modular buildings is clearly intended to apply to permanently installed modular structures regardless of whether for residential or commercial purposes. Accordingly, when the Taxpayer contracts to furnish and affix modular building sections to a permanent foundation as an improvement to the realty, and the modular sections are built to comply with the Virginia Industrialized Building Safety Law, the Taxpayer becomes liable for the retail sales and use tax as noted in Va. Code § 58.1-610.1 cited above. In such instances, the application of the tax is explained in Virginia Tax Bulletin 00-3 (6/20/00).

In your letter, you present a scenario of a typical transaction involving the sale and installation of a modular building with the following costs:

· Sale of modular building = $50,000
· Delivery charge = $1,500
· Set-up = $6,000
· Plumbing = $4,000
· Electrical = $8,500
· Handicap decks and ramps = $7,000

When the Taxpayer contracts to sell and install a modular building as defined by Va. Code § 58.1-602, it is acting as a real property contractor in accordance with Va. Code § 58.1-610 and Title 23 of the Virginia Administrative Code 10-210-410. In such instances, the Taxpayer is ultimately liable for the retail sales and use tax as follows: (a) Tax on modular building = cost price of modular building to Taxpayer x .60 (60% rule) x .05 (tax rate), and (b) tax on the cost price of set-up, plumbing, electrical, decking and other construction materials. For example, the Taxpayer pays $30,000 for the modular building sections. The tax is computed as follows: $30,000 x .60 x .05 = $900.00. The Taxpayer also pays $1,000 for additional electrical wiring, boxes and conduit that it buys for installation at the home site. The tax is computed as follows: $1,000 x .05 = $50.00. Because the Taxpayer is the one ultimately liable for the tax on the materials installed pursuant to its real property construction contracts, it must not charge its customers a retail sales and use tax in connection with the modular building or any associated charges for set-up, electrical, delivery, plumbing or decking charges. Rather, the Taxpayer should take the tax into consideration when submitting bids or providing price quotes for a job.

CONCLUSION


In the absence of a ruling from DMV to the contrary, the modular units sold by the Taxpayer should be treated as subject to the retail sales and use tax as noted above.

Because the Department has limited information about the Taxpayer's operations and products, this ruling provides general guidance only. The facts presented do not provide sufficient basis for the Department to issue a binding ruling that is tailored for the specific circumstances of the Taxpayer.

The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. 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,

                • Janie E. Bowen
                  Tax Commissioner


AR/56939R

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46