Tax Type
Retail Sales and Use Tax
Description
Fabrication, sale and onsite erection of prefabricated buildings
Topic
Credits
Property Subject to Tax
Date Issued
02-07-2006
February 7, 2006
Re: § 58.1-1824 Protective Claim for Refund
Retail Sales and Use Tax
Dear *****:
This is in reply to your letters in which you submit a protective claim for refund for taxes previously paid by ***** (the "Taxpayer") to the Commonwealth of Virginia for the period January 1, 1998 through May 31, 2001. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is engaged in the fabrication, sale and onsite erection of prefabricated timber-frame, metal-sheathed warehouses and other buildings. The Taxpayer purchases raw materials in bulk from vendors outside Virginia and stores them in its warehouses in Pennsylvania.
The Taxpayer fabricates the building components in its factory in Pennsylvania. When an order is received, the Taxpayer withdraws the necessary raw materials from storage and makes them into various building components in accordance with the customer's specifications for the building. The building components include trusses, lower columns, upper columns, purlins, metal panels and overhead rafters.
The Taxpayer delivers the completed building components, along with windows, doors and other items purchased by the Taxpayer, in their final form to the customer's site. The Taxpayer's employees supply the labor for erecting the buildings. The erection of the buildings represents a permanent improvement to real property in Virginia.
The Commonwealth of Pennsylvania conducted an audit of the Taxpayer and assessed the Taxpayer for use taxes on tangible personal property used or consumed in Pennsylvania in the fabrication of building components. The Taxpayer initially submitted a refund claim for use tax previously paid to Virginia on property taxed in the Pennsylvania audit. The refund claim totaled *****. The Taxpayer has settled the Pennsylvania audit and succeeded in having the assessment reduced. Accordingly, the Taxpayer has reduced its refund request to *****.
DETERMINATION
Period of Limitations
Virginia Code § 58.1-1824 provides that "any person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing for refund with the Tax Commissioner . . . within three years of the date such tax was assessed."
Virginia Code § 58.1-1823 authorizes the refund of any tax within three years from the date such tax was paid. Title 23 of the Virginia Administrative Code 10-210-3040 addresses the refund of sales taxes to a dealer, and specifically states, "Refunds cannot be authorized unless the request is made within three years from the due date of the return."
With regard to the period for which the Taxpayer has requested a refund, a portion of the period, January 1998 through March 1999, is beyond the three-year period of limitations. In order to preserve the January 1998 through March 1999 period, the Taxpayer's protective claim should have been filed by February 20, 2001. Because the protective claim is deemed to have been filed as of the date of the Taxpayer's initial letter (May 20, 2002), the period January 1998 through March 1999 is barred from refund.
Consequently, the amended refund request submitted by the Taxpayer has been further reduced based on a percentage represented by total taxes paid for the timely protective claim period, divided by total taxes paid to Virginia for the claim period within the statute. The resulting percentage is then applied to the amended refund amount reducing the refund amount to ***** (see enclosed computation).
Application of the Tax - Pennsylvania
In response to a request for a ruling, the Office of Chief Counsel for the Pennsylvania Department of Revenue issued SUT-03-003 on January 17, 2003, copy enclosed. This ruling addresses the application of Pennsylvania's retail sales and use tax to the fabrication of construction materials used outside Pennsylvania.
The Pennsylvania Tax Reform Code of 1971, as amended, provides for a special resale exemption when tangible personal property is purchased or has a situs within Pennsylvania solely for the purpose of being processed, fabricated or manufactured into, attached to or incorporated into tangible personal property and thereafter is transported outside Pennsylvania for use exclusively outside Pennsylvania. 72 P.S. § 7201(i).
If an installer purchases materials specifically for a project outside of the Commonwealth of Pennsylvania and the materials are processed, fabricated, or manufactured into one of the components of the target project, the materials qualify for the "special resale" exemption. This ruling further advises that if materials are taken from the installer's stock or are not fabricated prior to being transported out of the Commonwealth of Pennsylvania, the "special resale" exemption does not apply.
In addition, the response states that for materials that do not qualify for the "special resale" exemption, the tax is due the Commonwealth of Pennsylvania, and other states should permit the installer a credit for the sales and use tax paid to Pennsylvania.
The tangible personal property involved in the Taxpayer's protective claim for refund was not purchased on a job specific basis, or for a specific customer, but was taken from a bulk inventory and then fabricated into building components for use in constructing buildings in Virginia. Accordingly, it appears that such property is not entitled to the "special resale" exemption referred to in the Pennsylvania ruling letter. Consequently, the materials were properly taxed by Pennsylvania.
Application of the Tax - Virginia
With regard to the buildings constructed in Virginia, the Taxpayer is considered to be a contractor. Virginia Code § 58.1-610 provides
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- Any person who contracts . . . to perform construction . . . or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption . . . .
Inasmuch as a real estate construction contractor is deemed to be the taxable user or consumer of all articles of tangible personal property to be furnished under a construction contract, any materials purchased in or imported into Virginia are subject to the Virginia sales or use tax. Accordingly, the materials used by the Taxpayer to complete jobs in Virginia are taxable in Virginia.
Notwithstanding the taxability of the materials in Virginia, Va. Code § 58.1-611 provides a credit against the Virginia tax to the extent that materials used in Virginia were previously subjected to a sales or use tax in the state in which they were purchased. The credit would be available with respect to tax paid to Pennsylvania on raw materials purchased in that state that were fabricated into building components for use in Virginia real estate construction contracts.
Conclusion
Although a credit against Virginia tax may be available, the Taxpayer has not proven that the tangible personal property upon which the tax was paid to Virginia for the protective claim period is the same property upon which the tax was applied by the Pennsylvania audit. The invoices submitted with the Taxpayer's request for refund do not list the materials furnished by the Taxpayer in its construction of buildings in Virginia. The Taxpayer does not provide detailed listings of materials taxed by Pennsylvania. The limited information presented with the Taxpayer's request for refund is not sufficient to allow a credit pursuant for Va. Code § 58.1-611. Therefore, I cannot grant the Taxpayer's request for refund at this time.
You have indicated that documentation is available that will reflect the use taxes paid to Virginia during the refund claim period, but that such documentation is too voluminous to submit with the refund request. Without the receipt of such information or the availability of such information for review, the Department is unable to authorize such a refund.
I will allow the Taxpayer 60 days from the date of this letter to furnish the necessary documentation to substantiate its refund request. Please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, *****@tax.Virginia.gov or at ***** to make the appropriate arrangements. If the Taxpayer does not furnish all required documentation within the time allowed, it will be presumed that no additional information will be provided and the Taxpayer's protective claim will be denied.
The Code of Virginia sections and regulations cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions regarding this matter, please contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.Virginia.gov or at *****.
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- Sincerely,
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- Kenneth W. Thorson
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- Tax Commissioner
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- Kenneth W. Thorson
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AR/45264Q
Rulings of the Tax Commissioner