Tax Type
Retail Sales and Use Tax
Description
Construction and repair contractor without valid exemptions
Topic
Exemptions
Property Subject to Tax
Records/Returns/Payments
Taxable Transactions
Date Issued
05-26-2009
May 26, 2009
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period July 2004 through June 2007. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a construction and repair contractor. The Taxpayer contests seventeen purchases included in the audit. The Taxpayer contends that several of these items are exempt from the tax based on the pollution control exemption or the industrial manufacturing exemption. For other items, the Taxpayer contends that a credit should be granted for Maryland sales tax paid. In addition, the Taxpayer contends that an item is exempt because it was used in connection with a tax exempt job, and another transaction was for nontaxable construction services.
DETERMINATION
Certified Pollution Control Exemption
The Taxpayer contends line items #1 through #11 of the contested purchases are part of a water treatment plant process for filtering sediment from water and should qualify for the exemption. Virginia Code § 58.1-609.3 9 provides an exemption from the retail sales and use tax for:
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- (i) Certified pollution control equipment and facilities as defined in § 58.1-3660, except for any equipment that has not been certified to the Department of Taxation by a state certifying authority pursuant to such section and (ii) effective retroactive to July 1, 1994, and ending July 1, 2006, certified pollution control equipment and facilities as defined in § 58.1-3660 and which, in accordance with such section, have been certified by the Department of Mines, Minerals and Energy for coal, oil and gas production, including gas, natural gas, and coalbed methane gas. [Emphasis added.]
The Taxpayer has not provided any evidence that the items at issue (thread rod, equipment tags, hangers, PVC pipe, PVC pipe cutter, pipe stanchions, pressure gauge, flow meter, etc.) were certified by the Department of Environmental Quality (DEQ) as pollution control equipment. Absent proof of such required certification, these contested items do not qualify for the certified pollution control equipment exemption.
Industrial Manufacturing Exemption
The Taxpayer claims that the above items claimed to qualify for the certified pollution control exemption are also exempt pursuant to the industrial manufacturing exemption in Va. Code § 58.1-609.3 2. The Taxpayer has not provided any evidence in support of its position. Furthermore, the Taxpayer made the same contention in its appeal of the prior audit. In response to the Taxpayer's prior appeal, the Department issued Public Document (P.D.) 99-54 (4/7/99), which specifically held that the industrial manufacturing exemption was not applicable to water supply or water treatment authorities controlled by Virginia municipalities. It is my understanding that the contested items were installed at water treatment facilities controlled by Virginia municipalities. Accordingly, I find no basis for extending the industrial manufacturing exemption to the items at issue.
Tax Credit
In connection with four contested items, the Taxpayer contends a credit should be provided for sales tax paid to Maryland.
Virginia Code § 58.1-611 allows a limited credit against the Virginia retail sales and use tax with respect to a person's use in Virginia of tangible personal property purchased by the person in another state. Interpreting this statute, Title 23 of the Virginia Administrative Code (VAC) 10-210-450 states that this credit does not apply to tax erroneously charged or incorrectly paid to another state.
For line items #12 and #13 of the contested purchases, I understand these items were purchased in Virginia and delivered to the Taxpayer in Virginia. Because the sale is made in Virginia with delivery to the Taxpayer in Virginia, the contested purchases are subject to the Virginia retail sales and use tax. Thus, no credit for the erroneous payment of Maryland sales tax is applicable against the Virginia use tax assessed in this instance.
For line items #15 and #16 of the contested purchases, I understand these charges are for the monthly rental of equipment (loader). According to the Department's auditor, this loader was delivered to the Taxpayer in Virginia for use in Virginia. In such instances, the loader is subject to the Virginia retail sales and use tax. Thus, no credit for the erroneous payment of Maryland sales tax is applicable against the Virginia use tax assessed in this instance.
Tax Exempt Job
The Taxpayer contests the inclusion of line item #17 (administrative supplies) of the contested purchases. I understand these supplies are used in connection with job #2274, a certified pollution control job. In this regard, Va. Code § 58.1-3660 defines certified pollution control equipment as follows:
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- Any property, including real or personal property, equipment, facilities, or devices, used primarily for the purpose of abating or preventing pollution of the atmosphere or waters of the Commonwealth and which the state certifying authority having jurisdiction with respect to such property has certified to the Department of Taxation as having been constructed, reconstructed, erected, or acquired in conformity with the state program or requirements for abatement or control of water or atmospheric pollution or contamination. [Emphasis added.]
Generally, administrative supplies are office or recordkeeping supplies used or consumed in the performance of a contract or for some other managerial or administrative purpose. As such, I find it implausible that administrative supplies would constitute personal property used primarily in the act of pollution abatement or prevention. Furthermore, no DEQ certification has been provided that such property was acquired in conformity with any state pollution control or abatement program. For these reasons, I find no basis to exempt the administrative supplies at issue.
Loader and Dozer Rental
Title 23 VAC 10-210-840 A sets out that the retail sales and use tax applies to leases or rentals of machinery and equipment when leased or rented without an operator.
The Taxpayer disputes the tax assessed in connection with invoice #1309, i.e., line item #18 of the contested purchases. The Taxpayer contends the invoice is not taxable because the dealer was contracted to perform construction services with its equipment and operator. A subsequent letter from the dealer explains that the labor charge on the invoice was for site maintenance and general help with the project. The letter also states the labor was not related to the operation of the equipment charged for on the job.
The invoice is broken into separate charges imposed over three days. For the first day, there is one labor charge for six hours, a dozer charge for six hours, a front end loader charge for 9 hours, and mobilization charges for the loader, roller, and dozer. For the other two days, the invoice shows only equipment charges for the loader, dozer and roller.
The supplier's letter does not sufficiently support the Taxpayer's contention that the invoice is only for construction services. The invoice has only one charge for labor and none of the other charges on the invoice provide any indication that they include the dealer's operation of the equipment. Rather, the other charges appear to be only for equipment use charges, such as equipment rental. Based on the documentation and facts presented, I find no basis to remove line item #18 from the audit.
CONCLUSION
Based on this determination, the assessment is correct. An updated bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges.
The Code of Virginia sections, regulations and public document 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 *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-2487297767.R
Rulings of the Tax Commissioner