Tax Type
Retail Sales and Use Tax
Description
Church's exemption is not available to contractor or other party pursuant to a contract
Topic
Exemptions
Nonprofits
Property Subject to Tax
Date Issued
01-13-2010
January 13, 2010
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter, submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling regarding a nonprofit church's ability to designate a construction contractor or subcontractor as its purchasing agent in order to receive the church's sales and use tax exemption on purchases of construction materials.
FACTS
The Taxpayer was awarded a construction contract by a church. The church is contemplating designating the Taxpayer as its purchasing agent by contractual addendum. The objective of this designation would be to allow the Taxpayer to use the church's tax exempt status when purchasing construction materials for the project. This addendum would state that the church's credit is bound on all purchases which it authorizes the Taxpayer to make on its behalf and that the church is ultimately liable for the payment.
RULING
Virginia Code § 58.1-609.10 16 provides, in pertinent part, an exemption to non-profit churches from the sales and use tax for "building materials installed by the church, and for which the church does not contract with a person or entity to have installed ...." Under principles established by the courts, taxation is the rule and exemption is the exception. Therefore, exemptions from the sales and use tax are strictly construed. The narrow language of the law specifically grants an exemption for construction materials only to the qualifying church in those instances in which it installs those materials through its own staff or volunteers. The exemption is not available when the materials are installed by a contractor or other party pursuant to a contract.
The Taxpayer's letter cites United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977) as a reference for the discussion of the Commonwealth's requirements for the conveyance of agency status. In its description of the qualifications, the case relies on the guidance provided in Title 23 of the Virginia Administrative Code (VAC) 10-210-410(J) (formerly VR 630-10-27), which states:
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- Generally, purchases of tangible personal property by contractors in connection with real property construction contracts with the governments of Virginia or the United States or political subdivisions thereof, are sales to such contractors for their own use or consumption and contractors are subject to the tax on such transactions .... Only in instances where the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental entity will such purchases be exempt from the tax.
Title 23 VAC 10-210-410(J) and the Forst decision address the ability to convey agency status by the federal and state governments only. The exemption under Va. Code § 58.1-609.10 16 for nonprofit churches contains provisions that go beyond the exemption applicable to the federal and state governments by specifically stating the construction materials must be installed by the church and not by a third party contractor. Therefore, Title 23 VAC 10-210-410(J) is not applicable to the situation presented by the Taxpayer.
In conclusion, as a construction contractor in Virginia, the Taxpayer is generally considered to be the provider of services with respect to real estate. Accordingly, under Title 23 VAC 10-210-410, the Taxpayer is required to pay the sales or use tax on all tangible personal property used for or incorporated into its real property construction contracts.
This response is based on the facts provided as summarized above. any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this ruling, 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/1-3721008955.M
Rulings of the Tax Commissioner