Tax Type
Retail Sales and Use Tax
Description
Tax on fabrication of tangible personal property, including labor for automotive parts
Topic
Basis of Tax
Tangible Personal Property
Date Issued
11-27-2007
November 27, 2007
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessments issued to ***** (the "Taxpayer") for the period January 2004 through June 2006. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a distributor of automotive equipment and heavy truck replacement parts. The parts are sold to customers who perform repair and maintenance on vehicles and equipment. The Taxpayer also makes or "crimps" hydraulic hoses, air conditioning hoses and battery cables that are sold for repair of vehicles or equipment.
As a result of the Department's audit, an assessment was issued for untaxed labor associated with the crimping of the hoses and cables. The auditor determined the labor constituted taxable fabrication pursuant to Title 23 of the Virginia Administrative Code VAC) 10-210-560 A. The Taxpayer contends that the labor is exempt repair labor that was separately stated on customer invoices.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-560 A provides that:
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- An operation which changes the form or state of tangible personal property is fabrication. Fabrication is distinguished from repair which is an operation that restores a used or worn piece of tangible personal property.
The Department has traditionally held that tangible personal property that is cut, sawed, shaped, bent, threaded, welded, bored, drilled, punched, machined, sheared, or otherwise subjected to an operation which changes the property's form or state is considered to have been "fabricated." Such operations are deemed to represent a taxable service in accordance with the above regulation.
In this instance, the Taxpayer is acting as a fabricator when making or crimping the hoses and cables. Although the hoses and cables may be used by the Taxpayer's customer in repairing an automobile or equipment, the Taxpayer is not repairing a broken or non-operational hose or cable. The Taxpayer is creating a new hose or cable to meet the customer specifications to replace a broken or non-operational hose or cable. This is supported by the Taxpayer's website advertising that it specializes in custom made hoses and cables.
Title 23 VAC 10-210-560 B provides that the sales tax applies to "the total charge for the fabrication of tangible personal property on a special order for a consideration, including labor, even if charges for labor are separately stated." The Department's longstanding policy on the application of tax to charges for the fabrication of tangible personal property, including labor, is addressed in Public Document (P.D.) 88-136 (6/20/88). In this document, the Tax Commissioner addresses the difference between separately charged labor rendered in installing, applying, or remodeling or repairing property sold and taxable labor charges for the fabrication of tangible personal property.
Based on the foregoing, there is no basis for revising the audit. According to the Department's records the assessments have been paid in full; therefore, no refund will be issued.
The regulation sections and public document cited, along with other reference documents, are available on-line at www.tax.virignia.gov in the Tax Policy Library section of the Department's website. 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
- Janie E. Bowen
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AR/1-1037267687i
Rulings of the Tax Commissioner