Tax Type
Retail Sales and Use Tax
Description
Transactions were exempt leases of building units to the federal government.
Topic
Exemptions
Records/Returns/Payments
Reports
Date Issued
05-04-2009
May 4, 2009
Re: Reconsideration of § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letters and the additional information presented on behalf of ***** (the "Taxpayer") as reconsideration of my determination of May 25, 2007. In that determination, the retail sales and use tax assessments issued to the Taxpayer for the period January 1999 through October 2004 were upheld. I apologize for the delay in responding to you.
FACTS
In my prior decision, I agreed to revise the Taxpayer's audit provided the Virginia Department of Motor Vehicles (DMV) officially ruled that the specific modular structures at issue (the building units) in the audit constituted mobile offices subject to the Virginia motor vehicle sales and use tax. In response, the Taxpayer furnishes a letter from the DMV Deputy Director of Titles and Registration setting out an opinion that the overall building units manufactured by the Taxpayer are mobile offices. However, neither the Taxpayer's letter to DMV nor DMV's response make any reference to the specific building units held in the Department's audit. In addition, the letters do not specifically address whether the building units used for military office buildings or military barracks constitute mobile offices as defined in Va. Code § 58.1-2401. Although the letter to DMV states that the buildings are not designed for residential use, the additional contract documentation provided clearly establishes that some of the building units were built specifically for barracks purposes. For these reasons, I cannot rely upon DMV's response as the sole justification for the removal of the building units in question from the Department's audit.
The Taxpayer also furnished some specific contract information on particular projects to support its position that the transactions were exempt leases of building units to the federal government. Based on such additional documentation and information, the Taxpayer requests the removal of all of the building units at issue from the audit.
DETERMINATION
For purposes of the retail sales and use tax, Va. Code § 58.1-602 defines the term "modular building" as follows:
-
- "Modular building" means, but shall not be limited to, single and multifamily houses, apartment units, commercial buildings, and permanent additions thereof, comprised of one or more sections that are intended to become real property, primarily constructed at a location other than the permanent site, built to comply with the Virginia Industrialized Building Safety Law (§ 36-70 et seq.) as regulated by the Virginia Department of Housing and Community Development, and shipped with most permanent components in place to the site of final assembly. For purposes of this chapter, a modular building shall not include a mobile office as defined in § 58.1-2401 or any manufactured building subject to and certified under the provisions of the National Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C. § 5401 et seq.).
Virginia Code § 58.1-205 deems any assessment of tax issued by the Department as prima facie correct. This means that the Taxpayer has the burden of proving that an assessment is incorrect.
Temporary Modular Facilities
Based on the additional documentation provided, I find that the Taxpayer entered into several contracts with the federal government to furnish temporary modular facilities, in which the building units were leased to the government with the expectation that the building units would be removed at the end of the lease term. For instance, some of the building units were specifically designated by the federal government as relocatable buildings, which means, per DOD Instruction No. 4165.56 (4/13/88), a "building designed to be readily moved, erected, disassembled, stored, and reused" and thus implies the government's intention for short term use. Although some of the building units are not designated as relocatable buildings, the contract documents make the government's intention plainly apparent that the building units remain tangible personal property upon installation. As such, these transactions do not constitute a modular building as defined in Va. Code § 58.1602 because the documentation does not evince an intent to affix the building units to real property. Although the documentation is not conclusive as to whether these transactions constitute mobile offices as defined in Va. Code § 58.1-2401, the sale or lease of tangible personal property to the federal government is exempt from the retail sales and use tax pursuant to Va. Code § 58.1-609.1 4. For these reasons, the following line items will be removed from the Department's audit:
- For the audit period January 1999 through March 2002, line items #1, #2, #3 (relocatable building), #4 (temporarily installed materials), #6 (relocatable building), and #7 (tires and axles related to line item #6).
For the audit period April 2002 through October 2004, line items #1, #2, #3, #4, #5, and #8.
The other items assessed will remain in the audit because the Taxpayer has not satisfied the burden of proof required to demonstrate the assessment is incorrect. These items are addressed below.
Audit Period January 1999 - March 2002
Line Item #5. Because the Taxpayer has not established with evidence that the operations support center was built as a temporary structure, the transaction is deemed an improvement to realty. The Taxpayer contends that a temporary operations center was created, but no evidence was presented in support of such contention. The Taxpayer has not provided the general contract that the general contractor had with the federal government. Also, no evidence was provided that the transaction was for the lease of tangible personal property or was otherwise a temporary structure as claimed. Further, no conclusive evidence was provided that the units constituted a mobile office as defined by Va. Code § 58.1-2401.
Furthermore, the resale exemption certificate provided by the general contractor is not acceptable when the transaction is for real property construction services and not for the sale of tangible personal property. Even if the resale exemption certificate were applicable, it is not timely dated. The certificate was submitted to the Taxpayer more than three years after the transaction was originally billed and thus was not relied upon in good faith to exempt the transaction at the time of sale. For exemption certificate use, see Title 23 of the Virginia Administrative Code 10-210-280.
Line Item #8. This item is not a mobile office because barracks are for residential use. The definition of mobile office in Va. Code § 58.1-2401 clearly excludes an industrial building unit constructed for residential use. The additional documentation presented shows that these barracks are built to the uniform building code and carry a Virginia registration seal. This strongly suggests that the barracks were built to comply with the Virginia Industrialized Building Safety Law (Va. Code § 36-70 et seq.), which is one of the criteria for classification as a modular building. I would also note that the contract's order required all running gear to be returned and the installation of skirting. These actions considered together do not appear to be indicative of a temporary placement. For these reasons and absent evidence to the contrary, I must conclude that the government's intention was for permanent placement of these barracks. As such, these barracks constitute a modular building as defined in Va. Code § 58.1-602.
The documentation also shows that the Taxpayer furnished auger anchors, foundation pads, termite shields, treated shims, and steel plates for piers. Thus, it appears that the Taxpayer was involved in setting the home on the foundation. Accordingly and absent evidence to the contrary, the Taxpayer is the consuming contractor and thus liable for the tax on all materials used in affixing tangible personal property to realty in this transaction. See Va. Code § 58.1-610.
Line Item #9. This transaction is also for the provision and setting of barracks and the comments provided for line item #8 above are also applicable to line item #9. Furthermore, the resale exemption certificate provided by the general contractor is not applicable because the transaction is for real property construction services. Even if the resale exemption certificate were applicable, it is not timely dated. The certificate is dated more than two years after the transaction was originally billed and thus was not relied upon to exempt the transaction at the time of sale.
Audit Period April 2002 - October 2004
Line Item #6. This transaction is for the manufacture and installation of a modular office building at *****, Virginia. The Taxpayer contends this item is a temporary office building for the military. However, clause 7.2 of the agreement dated November 10, 2003 between the Taxpayer and owner states the following:
-
- Owner shall secure and pay for necessary building permits, approvals, easements, assessments and charges for the construction, use or occupancy of permanent structures or permanent changes in existing facilities. [Emphasis added.]
This contract language strongly suggests that the modular office building was for permanent installation. As such, the resale exemption certificate presented by the owner has no application to the transaction. Based on the contract language cited above and absent convincing evidence to the contrary, I must conclude that the transaction is for real property construction services. As such, the Taxpayer is liable for the retail sales tax on the cost price of materials used in the performance of its real property construction services. Accordingly, this item will remain in the audit.
Line Item #7. This transaction is for the manufacture and installation of a modular child care building at *****, Virginia. The Taxpayer contends that this is a temporary structure. The agreement for this transaction uses virtually all of the same contract language as the contract furnished for line item #6 above, including the same contract clause 7.2 noted above. Accordingly, the same reasons set out in line item #6 for treating the transaction as a real property construction contract apply for line item #7.
CONCLUSION
The Code of Virginia sections and regulation 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 Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
-
-
-
-
-
-
AR/1-2615226049.R
Rulings of the Tax Commissioner