Tax Type
Retail Sales and Use Tax
Description
Government contracts; telecommunication engineering and installation services
Topic
Tangible Personal Property
Date Issued
10-25-2006
October 25, 2006
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period August 2001 through July 2004. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer specializes in telecommunication engineering and installation services. An audit resulted in the assessment of consumer use tax on various purchases of tangible personal property provided by the Taxpayer in connection with two government contracts.
The Taxpayer contests the assessment of tax on cabling, raceways and related items purchased and installed by the Taxpayer. One contract is with a public school system to furnish and install cable television systems in several schools. The work appears to generally consist of installing new cabling and related materials, such as cable outlets, raceways and boxes, electrical metal tubing (EMT) conduit, and similar items.
The other contract is with the federal government and appears from the contract documents to generally require the Taxpayer to furnish and install cable and related materials, such as EMT conduit, cable support structures (consisting of J-Hooks), outlet boxes, cable trays, pull boxes, pedestals, and similar items. Installation of these materials is generally in the overhead space and along walls of buildings or in the ground or in ducts between buildings. In some instances, the Taxpayer utilizes the existing ducts to install the cable and to bury or "trench-down" cable along a street.
The Taxpayer claims that the intent of both government parties was to order tangible personal property that does not become permanently affixed to real property. Based on this claim, the Taxpayer believes that the property provided in connection with the contracts is purchased for resale to the government and no tax is due.
DETERMINATION
In regard to telecommunications systems, the sale or lease of such systems to end users is generally treated as a taxable retail sale of tangible personal property, except a separately stated charge for the installation of such system is exempt from the tax. A transaction for only the sale of a telecommunications system to a government customer is not subject to the tax. On the other hand, persons engaged in the sale or lease of telecommunications systems must pay the tax on all equipment and supplies used in installation. See Title 23 of the Virginia Administrative Code (VAC) 10-210-5040 A.
The Department has issued numerous public documents ("P.D.") on cable issues and has consistently held that cable installed in walls and ceilings constitutes an installation service with respect to realty. See P.D. 99-107 (05/07/99) and P.D. 90-210 (11/28/90). As such, persons who purchase and install cable, wire, connectors and related materials are considered the taxable consumers of these items. See Title 23 VAC 10-210-410 A and Va. Code § 58.1-610.
Furthermore, contractors who perform real property work for the government are governed by the contractor provisions of Title 23 VAC 10-210-410 J. This regulation holds government contractors ultimately liable for the sales and use tax on their purchases of tangible personal property that become realty upon installation. Accordingly, the resale exemption in Va. Code § 58.1-602 defining "retail sale" and the government exemption in Va. Code § 58.1-609.1 4 are not applicable to their purchases of wire, cable, conduit and other installation materials. For more information on this issue, see P.D. 91-118 (7/17/91).
A review of the contract documents presented shows no expressed intention by either government entity that the cabling was intended only as a temporary installation. Rather, the cabling and related items are constructively annexed to the buildings and are essential and integral to the existence and long-term use of the buildings for instructional or office purposes. The contract documents presented do not express any short-term or temporary use of the installations, such as a short-term planned relocation. Furthermore, the furnishing of exemption certificates by these parties is not evidence of intent to make cabling a temporary addition to the realty. Absent proof that the government entities intended these installations as only temporary additions at the time that the contracts were made, it would appear that the parties intended for these installations to be permanent in nature. In accordance with Va. Code § 58.1-610, Title 23 VAC 10-210-410 A and the prior rulings of the Tax Commissioner, the Taxpayer is considered the taxable consumer of the property provided in connection with both contracts and the assessment of the tax is proper in this instance.
The Taxpayer cites P.D. 88-159 (6/23/88) to support its position. However, that ruling involved a contract for the sale of a computer system and, thus, did not involve a real property installation. In fact, there was no cabling issue noted in that ruling.
CONCLUSION
Based on the above determination, the assessment is correct as issued. An updated bill with interest accrued to date will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges.
Please note that failure to remit full payment within the 30-day period may result in the imposition of an additional 20% penalty on the tax due under the terms of Virginia's Amnesty Program. See the enclosure entitled "Important Payment Information."
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 determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Janie E. Bowen
Tax Commissioner
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AR/55452R
Rulings of the Tax Commissioner