May 18, 2020
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which ***** (the “Taxpayer”) seeks a ruling as to the proper Virginia sales and use tax application to Virginia real property contractors performing real property construction projects outside Virginia.
FACTS
The Taxpayer, a Virginia real property contractor, entered into a contract with an out-of-state general contractor to perform real property construction for an out-of-state university (the “University”). The University has been granted a direct payment permit by the state of North Carolina for the accrual and remittance of all North Carolina sales taxes. One of the conditions of the bidding process for the University job was that the contractors and subcontractors should pay sales tax on all materials at the time of purchase and remove all North Carolina sales taxes paid on materials in submitting their bids. In turn, the contractor or subcontractor would submit a separate schedule of North Carolina taxes paid and would be reimbursed accordingly.
As provided in your letter, and as exhibited in Exhibit “M” enclosed with your letter, the direct payment reimbursement process for this project only reconciles sales taxes paid by a contractor or subcontractor of North Carolina sales taxes. The Taxpayer, a Virginia contractor, paid Virginia sales tax on all materials that were used in the North Carolina project. As a result of the bidding process on this North Carolina project, the Taxpayer is at a competitive disadvantage with North Carolina contractors who will be reimbursed for sales taxes paid, while a Virginia contractor who paid Virginia sales taxes will not. The Taxpayer is seeking guidance as to any reciprocity agreement Virginia may have with North Carolina to provide a level playing field with North Carolina contractors.
RULING
Virginia Code § 58.1-610 A provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. Title 23 of the Virginia Administrative Code 10-210-410 further provides that “the law treats every contractor as the user or of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.”
A contractor who enters into a real property construction contract to furnish and install construction materials does not resell the construction materials, but is considered the taxable user and consumer of such materials. This is true regardless of the fact the contractor may be performing real property construction for a nonprofit organization, a governmental organization, or any other customer that may enjoy an exemption from the retail sales and use tax.
In the present case, the Taxpayer performed a real property construction job in North Carolina for which the customer held a direct payment permit with the state of North Carolina. The contract terms for the job required contractors to pay the North Carolina sales tax on all building materials used in the construction project, but not include the North Carolina sales tax on bids to perform the construction project. In turn, the contractor would be reimbursed for all North Carolina sales taxes paid to the state of North Carolina. There are no provisions in the contract with regard to sales taxes paid other than North Carolina sales tax.
While I sympathize with the Taxpayer’s situation, there are no provisions within the Virginia statutes that would relieve the Taxpayer from paying the Virginia sales and use on real property building materials. In addition, there is no reciprocity agreement with the state of North Carolina to allow for a credit or refund of the Virginia sales tax properly paid on real property construction materials installed on a North Carolina project. However, based on the Attachment 2 and 3 enclosed with your letter, and the general reference to the sales tax contained in these attachments, the Taxpayer may wish to contact North Carolina or the University for reimbursement of the Virginia sales taxes that were paid on construction materials.
This response is based on the facts provided in your correspondence and summarized above. Any changes in the facts, or the introduction of new facts, may lead to a different result.
The Code of Virginia and regulation sections cited in this letter 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/1189.Q