Document Number
09-150
Tax Type
Retail Sales and Use Tax
Description
Taxpayer designs, fabricates/installs media sets for television broadcasting, church services and other events
Topic
Exemptions
Tangible Personal Property
Date Issued
10-08-2009


October 8, 2009





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 ***** (the "Taxpayer") for the period July 2004 through December 2007. I apologize for the delay in the Department's response.

FACTS


The Taxpayer designs, fabricates and installs media sets for television broadcasting, church services and other events. The Taxpayer was audited by the Department and contests the assessment of use tax on purchases of various materials and supplies that were furnished and installed for jobs that include church sanctuary finishes and broadcasting gets.

DETERMINATION


Church Exemption

The Taxpayer states that the exemption for churches applies to the work it does with respect to church sanctuary finishes. Virginia Code § 58.1-609.10 16 provides an exemption for:
    • Tangible personal property purchased by nonprofit churches that are exempt from taxation under § 501 (c) (3) of the Internal Revenue Code, or whose real property is exempt from local taxation pursuant to the provisions of § 58.1-3606, for use (i) in religious worship services by a congregation or church membership while meeting together in a single location and (ii) in the libraries, offices, meeting or counseling rooms or other rooms in the public church buildings used in carrying out the work of the church and its related ministries, including kindergarten, elementary and secondary schools. The exemption for such churches shall also include baptisteries; bulletins, programs, newspapers and newsletters that do not contain paid advertising and are used in carrying out the work of the church; ... and building materials installed by the church, and for which the church does not contract with a person or entity to have installed, in the public church buildings used in carrying out the work of the church and its related ministries, including, but not limited to worship services; administrative rooms; and kindergarten, elementary, and secondary schools.

This exemption is interpreted by Title 23 of the Virginia Administrative Code (VAC) 10-210-310. Section D of this regulation lists examples of property that is subject to the tax when purchased by churches. Several of the examples listed are taxable because the property is affixed to or becomes part of the real estate. The taxable items include stained glass windows, lighting fixtures, construction and building materials that the church does not install, heating and air conditioning equipment that is a part of real estate, kitchen equipment that is a part of real estate and other property that becomes a part of real estate when installed.

The Taxpayer maintains that it provides churches with interior sanctuary finishes that enhance the worship experience. The Taxpayer's message driven design services customize the sanctuary finish to the worship style of the church and its congregation. The Taxpayer states that the structures and finishes it provides serve the same purpose as specific items that are exempt under the church exemption in the Code of Virginia and the Department's regulations. The Taxpayer fabricates and installs items such as movable walls, acoustic wall treatments, projection surfaces, back lit graphic panels and altar and stage treatments.

Based on a review of the sales contracts and other documentation, the auditor identified items furnished and installed by the Taxpayer that were attached to or became part of the realty. These jobs typically involved the installation of fabricated items in fixed or permanent locations. Items furnished by the Taxpayer that were movable or could be used in different locations were not included in the audit. In accordance with the statute and regulation for the church exemption, items installed in fixed locations were held taxable because the items were attached to or became part of the realty. The Taxpayer was treated as a real property contractor with respect to these jobs in accordance with Title 23 VAC 10­-210-410 A, which states that a contractor is "any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon ...." The regulation then states that the contractor is the user or consumer of all tangible personal property furnished to him or by him in connection with real property contracts.

As a real property contractor, the tangible personal property used on church jobs that was affixed to or became part of real property was deemed to be for the Taxpayer's own use and consumption and subject to the tax. While I appreciate the custom nature of the work the Taxpayer performs and the fact that the work performed enhances the worship experience, the provision of tangible personal property that is attached to or becomes part of real property after installation does not qualify for the exemption for churches. Any exceptions to this general rule are included in the exemption statute. For example, the exemption statute includes baptisteries, although they are often incorporated into real property. The Department's longstanding policy is supported by the Department's regulation and prior rulings, such as Public Documents (P.D.) 90-36 (3/19/90) and 08-181 (10/17/08). The exemption statute itself further supports this position by limiting the exemption for (building materials to those installed by churches. Materials provided by or to third party installers are taxable.

Audiovisual Works Exemption

The Taxpayer also contends that the exemption for audiovisual works applies to purchases made for the fabrication and installation of broadcast background sets for commercial television stations and church ministries. Virginia Code § 58.1-609.6 a (i) provides an exemption for:
    • The lease, rental, license, sale, other transfer, or use of any audio or video tape, film or other audiovisual work where the transferee or user acquires or has acquired the work for the purpose of licensing, distributing, broadcasting, commercially exhibiting or reproducing the work or using or incorporating the work into another such work.

The Taxpayer claims the work it performs qualifies for exemption under Va. Code § 58.1-609.6 a (ii), which exempts "the provision of production services or fabrication in connection with the production of any portion of such audiovisual work ...." The audiovisual works exemption applies to entities such as program producers, radio, television and cable television companies, film and audiovisual tape production companies, advertisers and others. The exemption applies only to activities related to the production of exempt audiovisual works. Script writers, contractors that construct production sets, photographers, animal trainers and lighting services companies are examples of businesses that may provide services that qualify, for the exemption. The Taxpayer should note, however, that the exemption only applies to audiovisual works produced for the purpose of licensing, distribution, broadcast and commercial exhibition or reproduction for viewing or listening by the general public. Virginia Tax Bulletin 95-5 (6/23/95) provides additional guidance on this exemption.

The Taxpayer has not provided evidence to demonstrate it has provided services to customers engaged in the production of exempt audiovisual works. For example, customers are required to provide their vendors a properly executed Form ST-20A exemption certificate to make exempt purchases of goods and services for use in the production of qualifying audiovisual works. The Taxpayer has not provided any such documentation. Further, P.D. 95-198 (7/31/95) states the audiovisual works exemption does not apply to items affixed to realty. As previously stated, the audit only includes items installed by the Taxpayer that were attached to or became part of real property. Based on the information available, the work performed by the Taxpayer does not qualify for this exemption and the purchases were properly included in the audit.

CONCLUSION


Based on the foregoing, the assessment is correct as issued. The Taxpayer will receive an updated bill that reflects interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest. The Code of Virginia sections, regulations and public documents 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 regarding this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,


                • Janie E. Bowen
                  Tax Commissioner



AR/1-2329135247.S


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46