Tax Type
Retail Sales and Use Tax
Description
Contractor acting as agent for public service corporation
Topic
Exemptions
Date Issued
07-19-1984
July 19, 1984
Re: Request for Ruling/Sales and Use Tax
Dear ***********
This will reply to your letter of June 22, 1984, in which you submit a request for a ruling on the application of the sales and use tax to purchases by a contractor acting as an agent for the *****.
FACTS
*****, a public service corporation, proposes to return two presently unused generating units at its ***** to use as coal-fired units. In preparation, ***** is evaluating bids and is prepared to select a contractor for the project. ***** requests a ruling on the feasibility of designating the chosen contractor as its agent for the purpose of acquiring tangible personal property for use in the project. proposes to allow its contractor to use the utility's direct payment permit for this purpose.
Within the proposed agency agreement, ***** appoints the contractor as its agent to purchase certain property and agrees to pay all vendors directly. Property is to be purchased by the contractor under contracts which specify that the contractor is acting as the agent of ***** and that the vendor is to look to ***** for the payment of all bills.
RULING
§ 58-441.6(h) of the Code of Virginia provides an exemption from the sales and use tax to public service corporations, such as ***** for tangible personal property used or consumed directly in the rendition of public utility services. In addition, Virginia Code § 58-441.15(b) provides that a contractor may be provided tangible personal property by a public service corporation for use or consumption in providing services to such corporation without subjecting such contractor to the use tax.
Based upon the foregoing, I find that ***** may designate the contractor chosen for its ***** as its agent for the purpose of purchasing tangible personal property without subjecting such contractor to the use tax. Accordingly, it is then necessary to examine the proposed agency agreement to determine whether the objective desired by ***** will be achieved.
The application of the sales and use tax to purchases of tangible personal property by contractors on behalf of an entity which itself could purchase such property exclusive of the tax was addressed in United States v. Forst, 442 F. Supp. 920 (W.D.Va. 1977), aff'd, 569 F. 2d811 (4th Cir. 1978). The courts held in that case that "the legal incidence of the Virginia sales tax is on the purchaser"; consequently, a contractor purchasing on behalf of one who holds an exemption is not entitled to the same exemption unless the credit of the exempt entity "is bound by the purchasing agreement with the seller."
I find that the proposed agreement, if implemented, would bind the credit of ***** in all purchases made by the chosen contractor on the utility's behalf. The instant agreement designates the chosen contractor as ***** agent. The agreement also stipulates that all purchases by the contractor be made through contracts which provide that the contractor is acting as ***** agent and has not assumed any liability to the vendor and that the vendor should look to ***** for payment of all obligations resulting from purchases by the contractor.
Therefore, ***** may designate the contractor selected for its ***** as its agent, enabling the contractor to use the utility's direct payment permit for the purchase of tangible personal property. However, ***** must remit the tax upon any purchase by its contractor which would not qualify for exemption under Virginia Code §58-441.6(h).
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner