Tax Type
Retail Sales and Use Tax
Description
Tax on deliver only items, delivered to the job site for other contractors.
Topic
Tangible Personal Property
Taxability of Persons and Transactions
Date Issued
05-11-2011
May 11, 2011
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period June 2006 through April 2009. I apologize for the delay in this response.
FACTS
The Taxpayer is a steel fabrication and erection business that was audited by the Department. The Taxpayer contracts with general contractors to fabricate and install structural steel for commercial real property construction projects. In addition, the Taxpayer fabricates construction materials and supplies ("deliver only items") that are delivered to the job site for use by other contractors. The contract terms and pricing for the deliver only items are included in the same contracts that require the Taxpayer to perform real property construction services. The Taxpayer contests the audit assessment of retail sales tax on the deliver only items.
DETERMINATION
The Taxpayer is a real property contractor in accordance with Va. Code § 58.1-610 A, which states:
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- Any person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption. Any sale, distribution, or lease to or storage for such person shall be deemed a sale, distribution, or lease to or storage for the ultimate consumer and not for resale, and the dealer making the sale, distribution, or lease to or storage for such person shall be obligated to collect the tax to the extent required by this chapter.
In addition to furnishing and installing tangible personal property, the Taxpayer fabricates and delivers to job sites the deliver only items, which are for use by other contractors in their performance of the same real property construction contracts. The deliver only items are not used in any manner by the Taxpayer to perform the real property work required under its contracts. The property is typically delivered to the job site at the beginning of the job, and the general contractor is charged for the deliver only items as a contract billing from the Taxpayer. Separate pricing for the deliver only items is included in the Taxpayer's bids and contract documents. The deliver only items typically consist of bollards, anchor bolts, lintels, plates and similar construction materials. The Taxpayer states that the deliver only items were not an issue in previous audits conducted by the Department.
The Taxpayer maintains that it should be treated as the user or consumer of the deliver only items in the same manner as the structural steel that it installs under the terms of the real property construction contracts. The Taxpayer contends that Virginia law and regulations support its treatment as the user and consumer of the deliver only items. The Taxpayer cites Title 23 of the Virginia Administrative Code (VAC) 10-210410, subsections A and D, to support its contention. The Taxpayer also notes that the terms of the real property contracts require contractors and subcontractors to pay all applicable sales and use taxes.
The auditor treated the deliver only items as retail sales and assessed sales tax on the contract charges billed to the general contractors. The sales amounts held taxable in the audit were reduced to reflect credits for sales or use taxes paid on the deliver only items by the Taxpayer. In some cases, the auditor estimated the credit amounts for taxes paid on the deliver only items because sufficient information was not available to determine the actual credit amount. The audit assessment is based on the provisions of Title 23 VAC 10-210-410, which is the contractors regulation that interprets Va. Code § 58.1-610. Title 23 VAC 10-210-410 B states:
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- A person who is a using or consuming contractor, as explained in subsection A (of Title 23 VAC 10-210-410), may also be engaged in the business of selling tangible personal property to customers, including contractors, for use or consumption by them. If so, the person is a dealer with respect to such sales, and is required to obtain a Certificate of Registration.
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- After obtaining a Certificate of Registration as a dealer because he is engaged in the business of selling tangible personal property to customers for use or consumption by them, a contractor may purchase the tangible personal property under a resale exemption certificate. He may not purchase under a resale exemption certificate any tangible personal property which he knows at the time of purchase will be furnished by him in connection with any specific contract. If such a person, as a using or consuming contractor, removes from his sales inventory for use in the performance of any contract any tangible personal property purchased under a resale certificate, he must include the cost to him of such tangible personal property on his dealer's return and pay the tax. [Insert added.]
Title 23 VAC 10-210-410 E addresses contractors that fabricate for sale or resale and for their own use and consumption. This subsection of the contractors regulation makes it clear that a using and consuming fabricator that also sells tangible personal property to consumers must register to collect and pay the retail sales tax on the sales price of the property sold. Both subsections B and E of Title 23 VAC 10-210-410 reflect the statutory language in Va. Code § 58.1-610, which states that a person is the user or consumer of property furnished in connection with real property services. While the Taxpayer may perform real property services and provide tangible personal property to other contractors under the same real property contract, the Taxpayer is the taxable consumer of the property it actually uses to perform the real property services required in the contract. The statute does not make a contractor the taxable user or consumer of tangible personal property that is furnished to other contractors for their use in the performance of real property contracts. Contractors furnishing property under a real property contract must install or otherwise use the property in some manner to be the taxable consumer of the property furnished.
The Taxpayer does not install the deliver only items. Thus, with respect to the performance of real property construction services, the Taxpayer is not the end user or consumer of the deliver only items. Other contractors install the deliver only items to perform the real property services required in their contracts. The other contractors, not the Taxpayer, are the end users or consumers of the deliver only items. While the Taxpayer provides the deliver only items under the provisions of one overall contract that includes real property services, the deliver only items are not used in a taxable manner by the Taxpayer. The provision of the deliver only items is considered a retail sale.
This position is consistent with determinations and rulings issued by the Department, such as Public Document 97-45 (2/6/97). This ruling discusses a steel fabricator that operates primarily as a real property contractor in Virginia. In Scenario II of the ruling, an out-of-state affiliate of the steel fabricator provides structural steel on an uninstalled basis for Virginia jobs. The Tax Commissioner concludes that the steel fabricator is a using and consuming contractor because it has contracted to install the property fabricated by the affiliate. The affiliate is selling the fabricated property to the steel fabricator and the sales tax is due on the retail selling price of the property.
Based on the facts presented, the provisions of Title 23 VAC 10-210-410, subsections B and E, apply to the Taxpayer's operations. The Taxpayer is a real property contractor and a seller of tangible personal property, regardless that both activities occur under the same real property contracts. As such, the Taxpayer should be registered to collect the retail sales tax on sales of the deliver only items furnished under its contracts. As a fabricator of tangible personal property, the Taxpayer should follow the provisions set out in Title 23 VAC 10-210-410 E.
CONCLUSION
The assessment is correct with respect to the deliver only items. An updated bill, with interest accrued to date, will be mailed to the Taxpayer. Payment should be made within 30 days from the date of the bill to avoid the accrual of additional interest. Please remit payment to: Virginia Department of Taxation, Main Street Centre, 600 East Main Street, 23rd Floor, Richmond, Virginia 23219, Attention: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia section, regulation 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 concerning this determination, 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
- Craig M. Burns
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AR/1-3829617150.S
Rulings of the Tax Commissioner