Tax Type
Retail Sales and Use Tax
Description
Resale exemption of contractors designated as purchasing agents for a government entity.
Topic
Exemptions
Sale for Resale
Date Issued
09-05-2007
September 5, 2007
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of your client (the "Taxpayer"), in which you request a ruling regarding the application of the retail sales and use tax to purchases of tangible personal property made by a contractor pursuant to a contract with a government entity. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer contracts with the federal government for the provision of services and tangible personal property. You represent that the Taxpayer entered into two contracts with the federal government in which it was designated and expressly authorized to act as a "purchasing agent on behalf of the U.S. Government." Noting the change in the application of the true object test with regard to government contracts as a result of the passage of House Bill 5002 (Chapter 3, Special Session I of 2006), you request a ruling regarding the effect, if any, this change will have on the resale exemption extended to contractors designated as purchasing agents who purchase tangible personal property for a government entity. You also ask whether the resale exemption is available for purchases made by a designated purchasing agent where the terms of the contract are time and material, fixed fee or milestone.
RULING
Virginia Code § 58.1-609.1 4 provides, in pertinent part, that the retail sales and use tax shall not apply to "[t]angible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States."
Title 23 of the Virginia Administrative Code 10-210-410 J provides, in pertinent part, that "[o]nly in instances where the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental entity will such purchases be deemed exempt from the tax."
In United States v. Forst, 442 F. Supp. 920, 924 (1977), the Court determined that a key factor in determining whether the purchase of tangible personal property by a contractor is for its use or consumption lies in whether the credit of the government entity is bound. In Forst, the Court held that the contractor was liable for the tax on purchases of tangible personal property made pursuant to a contract with a government entity because the credit of the government entity was not bound.
The change in policy regarding the application of the true object test to government contracts does not effect the resale exemption that is extended to designated purchasing agents for government entities. In order for the resale exemption to apply, the government contractor must be officially designated a purchasing agent by the government entity and the credit of the government entity must be bound. This policy applies to contracts with terms that include time and material, fixed fee or milestone. Public Document 03-75 (10/27/03) and Public Document 04-109 (9/14/04) provide further clarification regarding the Department's policy on purchasing agents.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia section, regulation 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 ruling, you may contact ***** in the 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/1-939285969P
Rulings of the Tax Commissioner