07-67 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Contractor treated as a retailer; Taxpayer assessed use tax on sod

Topic

Basis of Tax

Collection of Tax

Date Issued

05-10-2007

May 10, 2007

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to your client, ***** (the "Taxpayer") for the period July 2001 through May 2004. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a country club that was audited by the Department and assessed use tax on various purchases. During the audit period, the Taxpayer contracted to have its golf course renovated by a business (the "Contractor") that specializes in golf course construction and renovation. The Department assessed the Taxpayer use tax on sod that was furnished and installed by the Contractor. The Department treated the Contractor as a retailer and, because the Contractor did not charge sales tax on the sod installed under the contract, assessed the Taxpayer use tax on the sod. The Taxpayer contests the assessment of tax on the sod.

DETERMINATION

Retailer vs. Contractor

Title 23 of the Virginia Administrative Code (VAC) 10-210-610 sets out the application of the sales and use tax to businesses that furnish and install flowers, shrubbery, nursery stock, sod and similar items. Contractors that provide these types of items under the terms of real property contracts are deemed to be making taxable retail sales rather than providing services with respect to real estate. Title 23 VAC 10-210610 B states:

- When a nurseryman, florist or other person makes retail sales of shrubbery and similar items, and as a part of the transaction agrees to transplant them on the land of the purchaser for a lump sum, the tax applies to the total charge. The tax does not apply to the charge for transplanting if the charge is separately stated on the invoice. [Emphasis added.]

- Title 23 VAC 10-210-610 C then states:

- Any landscaper, nurseryman, or contractor who goes beyond the sale and planting of shrubbery, sod, etc. and contracts to grade, seed and fertilize lawns or to provide periodic fertilizing or weed killing treatments is deemed to be a consumer of all tangible personal property used in performing such service and must pay the tax on such property at the time of purchase. [Emphasis added.]

This regulation states that a business is deemed to be a contractor only with respect to the services it renders beyond the sale and installation of shrubs, trees, plants and sod. These services typically include grading, seeding, mowing and fertilizing. The Contractor's golf course renovation work would typically be services with respect to real property with the exception of sod installation, which is a retail sale in accordance with the regulation cited above. The Contractor was correct to operate as a using and consuming contractor with respect to the real property services provided but should have registered and collected retail sales tax on the sale and installation of sod.

The regulation is not limited in its application to nurserymen, florists and landscape contractors. Subsection B of the regulation references "other persons" and Subsection C specifically references contractors in addition to landscapers. Subsection C refers to "such service" to differentiate between real property services like those performed by the Contractor and the retail sale and installation by landscapers and contractors of plants, shrubs, trees and sod. Accordingly, the Taxpayer was required to remit use tax to the Department on the sod purchases because the Contractor did not collect sales tax at the time the sod was sold.

Public Document (P.D.) 04-204 (11/23/04) discusses a contractor that, under a full-service real property contract, provided and installed an irrigation system, drilled wells, installed a pump station, performed site excavation, backfill, and soil compaction, removed rock, hauled debris off-site, graded the site, and dewatered the site. This contractor was deemed to be a retailer with respect to the sale and installation of trees, shrubs, plants and ground covers provided as part of the overall contract. Although the business discussed in P.D. 04-204 was a licensed contractor and provided real property services to the same or greater extent that the Contractor did in the Taxpayer's case, the contractor in P.D. 04-204 was deemed to be a retailer in addition to a real property contractor.

CONCLUSION

Based on the determination above, the assessment is correct. An updated bill will be issued that reflects the balance due, including accrued interest to date. The updated bill should be paid within 30 days to avoid the accrual of additional interest.

The regulation and public document 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 or wish to discuss the information in this letter, please contact ***** in the Office of Policy and Administration, Appeals and Rulings at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/55416S

Rulings of the Tax Commissioner