Tax Type
Retail Sales and Use Tax
Description
Tax treatment of lake and pond care services and product sales and installation
Topic
Tangible Personal Property
Taxability of Persons and Transactions
Date Issued
12-05-2011
December 5, 2011
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This reply is in response to your letter submitted on behalf of your client (the "Taxpayer"), in which you request a ruling regarding the tax treatment of lake and pond care services and product sales and installation. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer provides lake and pond care and also maintains a retail outlet that has inventory on hand for sale to the general public. The Taxpayer sells and installs fish and plants in ponds, aeration and fountain equipment, water gardens and architectural fountains. The Taxpayer also provides repair, maintenance, aquatic plant control and consulting services.
The Taxpayer requests a ruling regarding the application of the retail sales and use tax to the sale and installation of aeration and fountain equipment, aquatic nuisance plant control services and the sale and installation of plants or fish in ponds.
RULING
Sale and Installation of Aeration and Fountain Equipment
The Taxpayer cites Title 23 of the Virginia Administrative Code (VAC) 10-210-410 G as support for the assertion that it is a retailer rather than a real property contractor with respect to the sale and installation of aeration and fountain equipment. This regulation interprets Va. Code § 58.1-610 D, which states:
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- Any person selling fences, venetian blinds, window shades, awnings, storm windows and doors, locks and locking devices, floor coverings (as distinguished from the floors themselves), cabinets, countertops, kitchen equipment, window air conditioning units or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items.
The Department has ruled that the types of items that qualify for this treatment must be listed in the statute or be like or comparable to those listed items. In Public Document (P.D.) 88-133 (6/14/88), the taxpayer installed replacement doors and windows. The Tax Commissioner determined that replacement doors and windows were not included in, nor like or comparable to, the items listed in Va. Code § 58.1-610 D. The taxpayer was deemed to be a using and consuming contractor, not a retailer, and liable for the sales or use tax on the replacement doors and windows.
In this instance, the Taxpayer is selling and installing fountains and aeration equipment, which are not included in or comparable to those items listed in Va. Code § 58.1-610 D. Accordingly, the Taxpayer would not qualify as a retailer under the cited authorities.
Virginia Code § 58.1-610 A provides that tangible personal property incorporated in real property construction that loses its identity as tangible personal property and becomes real property is deemed to be tangible personal property used or consumed by the contractor. P.D. 99-49 (4/6/99) states that if the item installed by the contractor becomes part of the realty, then the transaction is considered an exempt real property service. When performing such installations, the contractor is considered the final taxable user of the property installed and may not purchase the property exempt for resale. Rather, the contractor must pay the sales or use lax on the cost price of the property installed.
Although your letter describes the equipment installed by the Taxpayer as sizeable and complex, you have not furnished a description of the actual size and type of aeration or fountain equipment being installed or the method or manner of installation, which may vary. Because it is not clear whether the equipment becomes part of real property or remains tangible personal property after installation, I will address the sale and installation of both real and tangible personal property.
In determining whether the equipment sold remains tangible personal property after installation or becomes part of real property, the Department looks to the guidelines provided by the Virginia Supreme Court in Danville Holding Corp. v. Clement, 178 Va. 223,16 S.E.2d 345 (1941). The Court recited three factors for determining whether property used in connection with realty is a fixture: "(1) Annexation of the chattel to the realty, actual or constructive; (2) Its adaptation to the use or purpose to which that part of the realty to which it is connected is appropriated; and (3) The intention of the owner of the chattel to make it a permanent addition to the freehold."
In accordance with this court decision, the intention of the party making the annexation is paramount in determining whether tangible personal property becomes real property after installation. If the structures are built with the intent to become permanent additions, have been annexed to the realty and have been adapted to the use of' the property, it can be concluded that the transaction is for real property construction or installation services and the charges billed to the Taxpayer's customers are not taxable. The Taxpayer is classified as a using and consuming contractor with respect to such transactions and is liable for the sales and use tax on purchases of the aeration and fountain equipment and any supplies used to perform the installation.
In addition, Va. Code § 58.1-603 imposes the sales tax on "the gross sales price of each item or article of tangible personal property..." Title 23 VAC 10-210-410 H further states:
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- Any person who sells tangible personal property at retail and installs such property as part of or incidental to the sale is a retailer and is required to add the sales tax to the sales price. The tax does not apply to installation charges when separately stated on a sales invoice. If the installation charge is not separately stated, the tax must be computed on the total charge.
If the aeration and fountain equipment remains tangible personal property after installation, the Taxpayer must charge the retail sales tax based on the sales price of the tangible personal property. The installation labor is exempt if separately stated on the customer's invoice. The Taxpayer is deemed to be the user or consumer of all supplies used for the installation and is subject to the tax on all such supplies purchased.
Sale of Aquatic Nuisance Plant Control Services
Title 23 VAC 10-210-610 C states:
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- Any landscape, nurseryman or contractor who goes beyond the sale and planting of shrubbery, sod, etc. and contracts to grade, seed and fertilize lawns or to provide periodic fertilizing or weed killing treatments is deemed to be a consumer of all tangible personal property used in performing such service and must pay tax on such property at the time of purchase. The charge to the customer for providing the service is not subject to the tax.
The Taxpayer provides aquatic weed killing and algae control treatments. These services are similar to those addressed in Title 23 VAC 10-210-610 C. As such, the Taxpayer is considered to be a using and consuming contractor and must pay the retail sales tax on all purchases of goods used to provide plant control services.
Sale and Installation of Plant and Fish in Ponds
Title 23 VAC 10-210-610 B addresses transplanting services as follows:
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- When a nurseryman, florist or other person makes retail sales of shrubbery and similar items, and as a part of the transaction agrees to transplant them on the land of the purchaser for a lump sum, the tax applies to the total charge. The tax does not apply to the charge for transplanting if the charge is separately stated on the invoice.
The Taxpayer sells and installs fish and plants in ponds. The Taxpayer's sale and installation of plants in ponds is similar to the sale and installation of shrubbery and plants discussed in Title 23 VAC 10-210-610 B. The sale of fish is clearly a sale of tangible personal property. Therefore, the Taxpayer is considered a retailer with respect to the sale and installation of fish and plants in ponds.
I hope this responds to your inquiry. 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 sections, regulations and public documents 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 regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-4177226228.M
Rulings of the Tax Commissioner