Tax Type
Retail Sales and Use Tax
Description
Subcontractors paid the tax on their purchases of items for sale and installation
Topic
Property Subject to Tax
Taxable Transactions
Date Issued
07-19-2007
July 19, 2007
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 June 2002 through May 2005. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a general contractor performing real property contracts for federal and state governments. An audit resulted in the assessment of tax on purchases and rentals of tangible personal property.
The Taxpayer contests the tax assessed on identification devices and panel partitions. The Taxpayer maintains that these transactions constitute subcontracts for the sale and installation of items that upon installation became a part of the real property. The Taxpayer has furnished documentation to demonstrate that the subcontractors paid the tax on their purchases of these items. In both instances, the general contract is with a federal government entity.
DETERMINATION
When a transaction calls for a contractor or subcontractor to furnish and install items that become real property upon installation, such contractor or subcontractor is deemed the taxable user and consumer of any and all items furnished and installed pursuant to such real property installation contracts. See Title 23 of the Virginia Administrative Code 10-210-410 A.
Panel Partitions
The Taxpayer describes the contested panel partitions as being large floor to ceiling folding partitions that roll on an above-ceiling and in-floor track. The partitions divide a conference room into three individual parts for individual meeting rooms and are recessed in enclosures when not in use. The Taxpayer indicates that these partitions are permanently mounted by attachment to the building structure.
In determining whether a tangible item becomes realty upon installation, the Department has relied upon three general tests adopted by the Virginia Supreme Court in Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550, 555, 172 S.E.2d 757, 761 (1970) and Danville Holding Corporation v. Clement, 178 Va. 223, 232, 16 S.E.2d 345, 349 (1941). They are (1) annexation of the property to the realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties. The chief test to be considered is the intent of the party installing it.
In this case, the panel partitions are attached to the realty and are adapted to serve one of the purposes of the building, i.e., the ability to hold separate meetings in a large conference room. Thus, the partitions satisfy the first two tests. The only evidence regarding intent is the fact that the partitions are installed on tracks that are attached to the building structure.
It is noteworthy that the Department issued Virginia Tax Bulletin 92-14 (4/01/92) to clarify the application of the retail sales and use tax to the sale and installation of public school equipment. Of relevant interest to this case is the section listing items generally considered to be real property upon installation. That listing includes folding partitions.
Based on the established policy cited above and the facts presented, I find basis for concluding that the panel partitions at issue became part of the realty upon installation. Accordingly, these items will be removed from the Department's audit.
Identification Signs
At issue is room and bathroom signage installed in a naval operations facility. The auditor held these items as retail sales of tangible personal property made to the Taxpayer. The Taxpayer claims that all of these items, however, became permanent fixtures to the building upon installation by the subcontractor. As such, the Taxpayer maintains that it should not be assessed sales or use tax on such transactions.
All items (except plastic inserts) are attached to surfaces of interior or exterior walls or doors by screws or bolts. The signage consists of structural rail, removable copy inserts, and interlocking end caps or frame and trim. The end caps and frames are designed to be vandal resistant. There are no freestanding signs.
The signage is affixed to a permanent structure and clearly adapted to the use of the building. A review of the websites of the sign manufacturers reveals that the signage is made from durable, high quality materials intended for permanent mounting. Thus, it would appear from this information and the contract documents presented that the government intended for the signage to become an integral part of the building and to remain in place for its useful life. Accordingly, the charges for these identification devices will be removed from the audit.
CONCLUSION
Because the contested assessment only includes tax in connection with the above two issues, the contested assessment , will be abated in full.
The regulation and tax bulletin 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,
Janie E. Bowen
Tax Commissioner
- Sincerely,
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AR/56507R
Rulings of the Tax Commissioner