Tax Type
Retail Sales and Use Tax
Description
Purchased tangible personal property on which tax was not paid.
Topic
Records/Returns/Payments
Tangible Personal Property
Taxable Transactions
Date Issued
08-16-2010
August 16, 2010
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period July 2005 through June 2008. I apologize for the delay in responding.
FACTS
The Taxpayer is a real property contractor. The Department's audit disclosed that the Taxpayer purchased tangible personal property on which tax was not paid to the vendor at the time of the purchase nor accrued and paid to the Department on the untaxed purchase price. In addition, the Taxpayer was held liable for the tax on its purchases where documentation could not be provided.
The Taxpayer disagrees with the assessment of tax on various purchases and contends that the tax was paid by the vendor at the time the vendor purchased the property. The Taxpayer also disagrees with the assessment of tax on certain job cost purchases associated with contracts where the vendor has stated that the tax is included in the contract price. The Taxpayer contends that the vendor is liable for the tax, and the Department should assess the vendor for the unpaid tax. The Taxpayer has paid the assessment and seeks a refund of the tax assessed on the contested purchases.
DETERMINATION
Contractors
Virginia Code § 58.1-610 generally makes all real property contractors the users or consumers of tangible personal property purchased for use in real property contracts. See Va. Code § 58.1-610 and Title 23 of the Virginia Administrative Code (VAC) 10-210-410. As a consumer of tangible personal property, the Taxpayer must pay the tax on all purchases of tangible personal property used in the provision of its contracting services. If a vendor does not collect the tax on sales made to the contractor, the contractor is liable for the accrual and payment of the use tax on its purchases from the vendor.
In several contracts with vendors for the purchase of tangible personal property, the contracts indicate that the tax is included in the purchase price. Regarding other purchases, the Taxpayer states that the vendor has paid the tax and that it should not be held liable for the tax.
With regard to the purchases at issue, the Taxpayer was given an opportunity to secure documentation that could possibly reflect in detail that the contracts may have included the tax. The Taxpayer failed to provide such evidence. In those instances where the Taxpayer contends that the vendor has paid the tax, there were no purchase invoices or other such evidence submitted to the auditor as proof of such contention. In each instance, the vendor sold tangible personal property to the Taxpayer but did not itemize any tax. Accordingly, I find that the Department has properly assessed the Taxpayer (the purchaser) for the tax at issue.
Concrete Pumping Charges
In this instance, concrete pumping charges were not subjected to the tax by the vendor when sold to the Taxpayer. The Department's position on the sale and delivery of concrete is addressed in Title 23 VAC 10-210-360 and provides:
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- The tax applies to retail sales of concrete produced in concrete mixer trucks. The amount on which the tax must be computed includes the charge for the concrete as well as any other service charges connected with such sale. Examples of taxable service charges include "short load," "holding time" charges, and any other transportation charges, regardless of whether such charges are separately stated. (Emphasis added).
Therefore, while the vendor did not charge the tax on the pumping charges, the Taxpayer, as the consumer of the concrete is also liable for the tax on any services or charges in connection with the vendor's sale of the concrete. Accordingly, I find no basis for an adjustment of this issue.
Granite Countertop
As previously stated, the Taxpayer is liable for the tax on all purchases for its own use and consumption in providing real property construction services, as provided in Va. Code § 58.1-610. In this instance, the granite countertop was purchased from a contractor without installation because the Taxpayer would install the countertop. Accordingly, the Taxpayer is a consuming contractor with respect to the countertop.
The Taxpayer contends that it contacted the Department and was advised by an auditor that the vendor at issue paid the sales tax on its purchase of the countertop and cannot pass the sales tax on to the Taxpayer. The application of the tax in such instances is consistent with the Department's established policy of treating transactions for the sale and installation of kitchen countertops as real property construction services subject to the provisions of Va. Code § 58.1-610 A and Title 23 VAC 10-210-410 A. In instances such as the one in this case, where a contractor (the vendor at issue) sells countertops without installation, the sales tax will apply to the price of the countertop and the contractor (vendor at issue) should collect and report the tax to the Department. If the sales tax is not collected on the sale, the purchaser (the Taxpayer) as the user and consumer of the countertop must accrue and remit the tax on the cost price of the property purchased as provided in Title 23 VAC 10-210-410 A.
Virginia Code § 58.1-1835 authorizes the Tax Commissioner to abate an assessment or a portion of an assessment that is attributable to erroneous advice furnished to taxpayers in writing by an employee of the Department acting in an official capacity. The Taxpayer has not provided any evidence that it received and relied upon written advice from the Department that resulted in the assessment at issue. Furthermore, a member of my staff contacted the auditor named in the Taxpayer's protest. The auditor stated that he consistently relates to all such contractors that the sale of countertops without installation is subject to the tax.
My concern with the verbal information the Taxpayer received is that it is often difficult to determine what specific questions were asked and what information regarding the Taxpayer's business activities was presented to Department personnel. Accordingly, I am unable to grant any relief from the Department's assessment based on the information received by the Taxpayer.
Change in the Treatment of Sellers and Installers of Countertops
Prior to July 1, 2010, dealers operating in a dual capacity of selling countertops at retail and selling and installing countertops in real property construction contracts must collect the tax on their retail sales of countertops sold but not installed and pay the tax on the cost price of the countertops they sell and install. See Va. Code § 58.1-610.
Effective July 1, 2010, Senate Bill 57 (Chapter 19, 2010 Acts of Assembly), treats dealers who sell and install countertops as retailers for purposes of the Retail Sales and Use Tax (Va. Code § 58.1-610 D). As such, affected dealers must collect the tax from purchasers of countertops, rather than paying the tax on their purchases of materials. In addition, fabricators of countertops who are also deemed "retailers" by virtue of this Act are authorized to claim the manufacturing exemption on purchases of equipment and machinery, raw materials, fuels, and other materials that are used directly in the fabrication.
Therefore, for the future, the Taxpayer, as a using and consuming contractor will be liable for the payment of the tax on purchases of countertops from vendors that sell such countertops with or without: installation. If the supplier of the contractor does not charge the tax on the sale to they contractor, the contractor shall be liable for the accrual and payment of the tax to the Department.
Library Contract
This contract involves the construction of a county library by the Taxpayer. A subcontractor in this contract sold tangible personal property and is considered a retailer for sales and use tax purposes. Because the Taxpayer's contract was with a governmental agency of the Commonwealth of Virginia, the subcontractor did not charge the tax on its sale of tangible personal property to the Taxpayer because it believed that the tangible personal property was not subject to the sales or use tax. The Taxpayer contends that because the contract is with a governmental entity, it should not be held liable for the tax.
The regulation in Title 23 VAC 10-210-410 A clearly states that no sale to a contractor is exempt on the grounds that the other party to the contract is a governmental agency. This rule applies to contractors that perform real property contracts on behalf of government entities including federal, state, and local governments. Because the sale by the subcontractor was not subjected to the tax, the Taxpayer as the purchaser and consumer of tangible personal property for its own use and consumption is liable for the payment of the tax.
Incidence of the Tax
Virginia Code § 58.1-612 requires dealers to collect and remit the sales tax on all sales or leases of tangible personal property. Virginia Code § 58.1-625, however, makes the tax the legal debt of the purchaser. This has been recognized by the federal courts, which have held that ". . . the legal incidence of the Virginia sales and use tax is on the purchaser . . . ." See United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977). As such, the Department may proceed against either the seller or the purchaser in instances where the tax has not been collected or paid.
CONCLUSION
Based on this determination, the assessment is correct as issued and no refund is due on any portion of the amount that has been paid.
The Code of Virginia sections and regulations cited are available on-line in the Tax Policy Library section of the Department's website, located at www.tax.virginia.gov. If you have any questions regarding this determination, please contact ***** of the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Linda Foster
Deputy Tax Commissioner
- Linda Foster
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AR/1-3829617022.Q
Rulings of the Tax Commissioner