Tax Type
Retail Sales and Use Tax
Description
Property not exempt of the tax for resale/ property passes to the government by contract
Topic
Exemptions
Property Subject to Tax
Date Issued
05-25-2006
May 25, 2006
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to purchases of tangible personal property made pursuant to a contract entered into with an agency of the federal government.
FACTS
The Taxpayer entered into a contract with the ***** (the "Agency") for *****. The stated purpose of the contract is to ensure that information technology resources "are managed, supported, sustained and upgraded as necessary to keep pace with changing technology and mission requirements in an efficient and effective manner." The contract further requires the Taxpayer to provide the following support services: (1) ensure all necessary hardware/software is available and property integrated; (2) maintain the infrastructure for its intended use in meeting [Agency] mission requirements; (3) plan and implement future technology upgrades without degradation to system readiness; (4) train and support customers in best system use; (5) maintain, operate and administer the infrastructure as an integrated system; and (6) ensure adherence to all Federal and [Agency] IT Security guidelines and policies in performing this statement of work.
The Taxpayer requests a ruling as to the proper treatment of tangible personal property purchased under this contract.
RULING
The Department has traditionally held that in considering the tax treatment of federal government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. The "true object" test described in Title 23 of the Virginia Administrative Code 10-210-4040 is used to determine whether the contract is for the sale of tangible personal property or for the provision of services.
If it is determined that a contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its contractual services, even though title to some or all of the property may pass to the government. Conversely, if a contract is for the sale of tangible personal property, the contractor may purchase such property exempt from the tax for resale. The subsequent sale of the property to the government is exempt under Va. Code § 58.1-609.1 4.
A review of the Statement of Work and terms of the contract reveals that the true object of the contract is for the provision of services. Accordingly, the Taxpayer is the user or consumer of the tangible personal property purchased pursuant to the contract. The Taxpayer is liable for the tax on all purchases of tangible personal property purchased in connection with the contract. The Taxpayer cannot purchase the property exempt of the tax for resale, even though title to some or all of the property may pass to the government.
The Code of Virginia and regulation sections cited, along with other reference documents, 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 ruling, 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
- Janie E. Bowen
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AR/1-258409310P
Rulings of the Tax Commissioner