May 25, 2016
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you request a ruling on behalf of your client (the “Contractor”) regarding the application of the retail sales and use tax to contractors doing construction and renovation work in Virginia.
FACTS
The Contractor is an out-of-state business that does construction work in Virginia. The Contractor generally acts as a subcontractor installing floors for other subcontractors or for the general contractor. The Contractor is paid by the contractor who hired them to do the floor installation and has no contact or interaction with the property owner. Based on a telephone conversation with a member of my staff, the Contractor installs actual floors and subflooring, i.e., wood, plywood, cement, etc., and not floor coverings such as rugs, mats, padding, and wall-to-wall carpeting. The Taxpayer also does not maintain a retail or wholesale place of business and purchases materials on a job-by-job basis. The Contractor requests guidance as to its Virginia retail sales and use tax responsibility on Virginia jobs.
RULING
Generally, real estate contractors must comply with Va. Code § 58.1-610 A, which sets out the following rule:
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.
However, Va. Code § 58.1-610 D provides an exception to the above general contractor rule and states:
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. (Emphasis added).
For purposes of the above exception to the general contractor rule, a retailer is defined in Title 23 Virginia Administrative Code 10-210-410 G as “any person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of the aforementioned items, and who performs installation as part of or incidental to the sale of the aforementioned items.” Subsection G goes on to provide the definition of floor coverings as follows:
“Floor coverings” (as distinguished from the floors themselves) include rugs, mats, padding, wall-to-wall carpets when installed by the tack strip or stretch-in methods, and other floor coverings which are not glued, cemented, or otherwise permanently attached to the floor below. Persons selling and installing floor coverings which become permanently attached to floors are deemed to be using or consuming contractors with respect to such items. Such floor coverings include carpet, wood block, cork, tile, linoleum, and vinyl floor coverings when glued, cemented or otherwise permanently attached to floors or plywood and concrete subflooring.
Based on the information provided, the Contractor is installing flooring and floor coverings that become permanently attached to existing floors or subflooring. Pursuant to Va. Code § 58.1-610 A, the Contractor is acting as a using and consuming contractor with respect to real property and would be the user and consumer of all flooring installed. This being the case, when purchasing flooring materials for use in its contract, the Contractor would pay the sales tax to its supplier on all tangible personal property used by it in fulfilling flooring contracts. Should the supplier fail to charge sales tax on any purchase of materials, the Contractor would be required to accrue and remit the Virginia consumer use tax directly to the Commonwealth of Virginia.
The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you should have any additional questions about this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6165110018.Q