Tax Type
Retail Sales and Use Tax
Description
Purchasing agent
Topic
Taxability of Persons and Transactions
Date Issued
03-30-1984
March 30, 1984
Re: Request for Ruling/Sales and Use Tax
Dear *************
This will reply to your letter of March 8, 1984 in which you submit a request for a ruling on the applicability of the sales and use tax to purchases by a contractor acting as an agent for the *****.
FACTS
***** (hereinafter *****) has ***** engaged (hereinafter *****) as a contractor to construct various facilities at its ***** plant site.
***** contemplates entering into an agreement whereby ***** is designated as its agent for the purchase of tangible personal property to be used in the fulfillment of ***** construction contract. Accordingly, ***** wishes to allow ***** to use its direct payment permit, allowing ***** to purchase items exclusive of the tax but requiring ***** to pay the tax on any non-exempt items purchased by ***** on its behalf.
Within the proposed agency agreement, ***** (1) appoints as its agent to purchase machinery, equipment, and materials in its name, (2) states that ***** shall make purchases using purchase orders which note on their face that ***** is acting as an agent for ***** and has not assumed any liability to the vendor for such purchases, (3) agrees to establish and maintain an account from which ***** may remove funds for the purchase of items on behalf of ***** and (4) notes that the title to all goods purchased by ***** on its behalf shall rest with *****.
RULING
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."
We find that the proposed agreement between ***** and ***** contains just such a clause. In this agreement, ***** designates ***** as its agent and establishes a fund from which ***** may pay for its purchases on *******behalf. Furthermore, ***** agrees to permit ***** to place a statement on its purchase orders that it is acting as ***** agent.
Therefore, based on the foregoing, I must conclude that ***** may, acting as an agent of ***** purchase items exclusive of the tax using ***** direct payment permit. However, I would note that ***** must remit the tax upon those purchases by ***** of property which will not be used in an exempt manner.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner