April 25, 2019
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessments issued for the period January 2013 through October 2016. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a construction contractor. The auditor assessed use tax in the audit on purchases of various items of tangible personal property consumed by the Taxpayer, finding that the Taxpayer did not remit the sales tax at the time the purchases were made. The Taxpayer contests the assessment of tax related to purchases made from five different vendors.
DETERMINATION
***** (“Vendor A”)
In this instance, pursuant to a purchase agreement, the Taxpayer purchased unassembled, prefabricated metal building parts from Vendor A, which is located in Virginia. Vendor A purchased the building parts from CECO Building Systems (the “Manufacturer”), which is located in North Carolina. The purchases of the building parts were held taxable by the auditor because Vendor A is not registered for the Virginia sales tax. The Taxpayer contends that it is not liable for the tax because Vendor A paid sales tax to the Manufacturer at the time the purchase of the building parts was made from the Manufacturer.
Virginia Code § 58.1-602 imposes the sales tax “upon every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth….” Virginia Code § 58.1-602 defines retail sale, in pertinent part as “a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter….”
Virginia Code § 58.1-625 A provides in pertinent part that “The tax levied by this chapter shall be paid by the dealer, but the dealer shall separately state the amount of the tax and add such tax to the sales price or charge. Thereafter, such tax shall be a debt from the purchaser, consumer, or lessee to the dealer until paid and shall be recoverable at law in the same manner as other debts.”
The documentation provided does not demonstrate that the Virginia sales tax was properly charged, collected and remitted by Vendor A on the purchases at issue. In fact, Vendor A is not registered for the Virginia sales tax. There is also no evidence that the Taxpayer accrued and remitted the Virginia use tax to the Department for the purchases at issue. While the invoices from the Manufacturer show sales tax charged to Vendor A, this has no bearing on the application of the sales tax on the purchases made by the Taxpayer from Vendor A. Accordingly, the purchases will remain in the audit.
***** (“Vendor B”)
The auditor assessed tax on the purchase of gymnasium equipment (including scoreboards), gymnasium dividers, fixed audience seating and telescoping stands because the sales tax was not charged on the invoice. The purchase was made pursuant to a subcontractor agreement with Vendor B for the furnishing and installation of the property at issue at a Virginia public school. The subcontractor agreement was not provided during the performance of the audit. The Taxpayer maintains that Vendor B is required to pay the tax on the purchase price and to pass the tax on to the Taxpayer as part of the contract price.
The central issue in this instance is whether the property installed by Vendor B became real property upon installation. The Virginia Supreme Court has addressed the distinctions between real property and tangible personal property in Danville Holding Corp. v. Clement, 178 Va. 223, 16 S.E.2d 345 (1941). The Court set out 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 the court decision in Danville Holding, the Department places great emphasis on the intention of the parties making the annexation in determining whether the annexed property qualifies as tangible personal property or real property. The property at issue is installed for use with the school’s athletic facility. Thus, the property is adapted to the use of the real property, i.e., the athletic facility. Based upon a review of Vendor B’s website regarding the installation of the property at issue, the extent of the work required to install the property indicates that the school does not intend for the property to be easily removed after being installed. After careful consideration of the factors discussed above, I find that it is the intention of the school to make the property a permanent part of the real estate. Thus, Vendor B was acting as a real property contractor, and the Taxpayer is not liable for the tax on the purchase of the property. Accordingly, the purchase at issue will be removed from the audit.
This decision is consistent with Public Document 05-159 (10/7/05). At issue in P.D. 05-159 was whether scoreboards installed by the taxpayer for a Virginia public school system became real property upon installation. Based upon an analysis of the test set out in Danville Holding, the Tax Commissioner determined that the scoreboards became real property upon installation because it was the intention of the school system to make the scoreboards a permanent part of the real estate.
***** (“Vendor C”)
The auditor assessed tax on purchases of signs because the sales tax was not charged on the invoice. The purchases were made pursuant to a subcontractor agreement with Vendor C for the furnishing and installation of interior and exterior signs at a Virginia public school. The subcontractor agreement was not provided during the performance of the audit. The Taxpayer maintains that Vendor C is required to pay the tax on the purchase price and to pass the tax on to the Taxpayer as part of the contract price.
Virginia Code § 58.1-602 defines tangible personal property as “personal property which may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses….” The definition of tangible personal property specifically includes manufactured signs. Accordingly, manufactured signs are subject to the sales tax when sold at retail.
Virginia Code § 58.1-609.1 4 provides, in pertinent part, that the retail sales and use tax does not apply to “Tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States.”
Pursuant to Virginia Code § 58.1-602, the interior and exterior signs are tangible personal property. As such, Vendor C is not liable for the tax on the signs as contended by the Taxpayer. Rather, Vendor C should have charged the Taxpayer the sales tax when the signs were purchased. In accordance with the subcontractor agreement, the signs were purchased by the Taxpayer for resale to the school. In order to make the purchase exempt of the sales tax, the Taxpayer should have presented a resale exemption certificate to Vendor C, as provided in Virginia Code § 58.1-623 A. Additionally, in accordance with Virginia Code § 58.1-609.1 4 and pursuant to the subcontractor agreement, the sale of the signs to the school is an exempt sale because the school is a political subdivision of the Commonwealth. Accordingly, the purchase will be removed from the audit.
***** (“Vendor D”)
The auditor assessed tax on purchases for fire door hardware because sales tax was not charged on the invoices reviewed. The Taxpayer maintains that the sales tax was paid on the invoices, in accordance with a subcontractor agreement with Vendor D. With its appeal, the Taxpayer provided invoices for the purchases at issue; however, the Taxpayer did not provide a copy of the subcontractor agreement. Vendor D is located in Pennsylvania. The invoices provided have a line item for Pennsylvania sales tax, but no sales tax was charged on the invoices.
Based on a review of the documentation provided, I find that the purchases at issue were properly held taxable in the audit. The Taxpayer has not proven that the Virginia sales tax was paid at the time the purchases were made, nor has the Taxpayer proven that the Virginia use tax was accrued and remitted to the Department. Accordingly, these purchases will not be removed from the audit.
***** (“Vendor E”)
The auditor assessed tax on purchases of markerboards because sales tax was not charged on the invoices reviewed. The Taxpayer maintains that the sales tax was paid on the invoices, in accordance with a subcontractor agreement with Vendor E. With its appeal, the Taxpayer provided invoices for the purchases at issue; however, the Taxpayer did not provide a copy of the subcontractor agreement. Vendor E is located in California. The invoices provided do not include a charge for the Virginia sales tax.
Based on the documentation provided, I find that the purchases at issue were properly held taxable in the audit. The Taxpayer has not proven that the Virginia sales tax was paid at the time the purchases were made, nor has the Taxpayer proven that the Virginia use tax was accrued and remitted to the Department. Accordingly, these purchases will not be removed from the audit.
CONCLUSION
Based upon this determination, the audit will be returned to the appropriate field audit staff to make the adjustments to the audit as stated herein. Once the adjustments are made, a revised bill, with interest accrued to date, will be mailed to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this determination, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1215P