Tax Type
Retail Sales and Use Tax
Description
Highway construction contractor making sales of asphalt and equipment
Topic
Collection of Tax
Exemptions
Taxability of Persons and Transactions
Date Issued
10-21-1985
October 21, 1985
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ****
This will reply to your letter of July 12, 1985, is which you submit an application for correction of sales and use tax assessed to ****** as the result of a recent audit.
FACTS
****** ("Taxpayer") is engaged as a highway construction contractor. The taxpayer manufactures asphalt, the preponderance of which is used by the taxpayer in its, construction projects. A small amount of the asphalt produced by the taxpayer is sold to other consumers. The taxpayer on occasion also, sells plant and construction equipment.
A recent audit of the taxpayer produced an assessment for its failure to collect the sales tax on sales of plant and construction equipment and its failure to remit the tax on the full price for which asphalt was sold to other consumers. In addition, tax was assessed for the taxpayer's failure to remit the sales and use tax on certain purchases for its own use or consumption.
The taxpayer contends such assessment, contending that its sales of plant and construction equipment were exempt occasional sales and that it should be due a credit for the tax paid on supplies and raw materials used to produce asphalt sold to other consumers. Lastly, the taxpayer contests the sample used to project its liability on purchases, contending that the sample included purchases on which tax had been paid and untaxed oil purchases that were not representative of the audit period.
DETERMINATION
The application of the sales and use tax to highway contractors and other contractors with respect to real estate is set forth in Section 630-10-27 of the Virginia Retail Sales and Use Tax Regulations (copy enclosed). This regulation specifically addresses the first issue at question here, where the taxpayer produced asphalt primarily for his own use, paid tax on the component or ingredient parts of the asphalt, and they sold a small portion of the asphalt to other consumers. With respect to this issue, the regulation states the following in subsection E:
persons (producing tangible personal property primarily for their own use in real property construction contracts) who sell tangible property to consumers must register, collect, and pay the tax on the retail selling price of the tangible personal property. Such person is entitled to purchase exempt from the tax only that tangible personal property which can be identified at the time of purchase as purchases for resale. If the person is unable to identify at the time of purchase the tangible personal property which will be resold, such person is required to pay the tax to his supplier. If at a later date, the person sells the tangible personal property at retail, the tax is collected upon the retail selling price. Such persons are not entitled to credit for the tax paid to suppliers since the transactions are separate and distinct taxable transactions. Emphasis added
Based upon the above provisions of the regulation, the taxpayer must collect the tax on asphalt sales based upon the full selling price and is not entitled to any credit for tax paid on component or ingredient parts of the asphalt unless it can identify them as resale items at the time of purchase. Accordingly, the assessment of tax relating to asphalt sales is correct in this instance and no credit is due the taxpayer on tax previously paid.
With respect to sales of plant and construction equipment by the taxpayer, Section 58.1-608.15 of the Code of Virginia exempts "occasional sales" from the tax. The term "occasional sale" is defined in Virginia Code Section 58.1-602.12 as:
a sales of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration...
As plant and construction equipment in this case is used in the course of an activity requiring the taxpayer to register and collect the tax (the sale of asphalt), the occasional sale exemption would not apply. A similar example is set forth in Section 630-10-75 of the Virginia Retail Sales and Use Tax Regulations:
If Company B, which operates a hotel and holds a certificate of registration for collecting tax on room rentals, sells beds and mattresses used in the hotel, the occasional sale exemption is inapplicable since the property being sold is being used in the activity for which B is required to hold a certificate of registration.
Based upon the above statute and regulation, the assessment is proper with respect to plant and construction equipment sales.
Lastly, I will address the sample used to compute the taxpayer's liability on untaxed purchases. The taxpayer asserts that the sample was skewed because the dominant problem area of oil purchases was corrected during the audit period, but outside the sample period. I understand that the oil in question was purchased from one vendor and used in producing asphalt. Such purchases, were certainly of a recurring and ordinary nature, thus their inclusion in the recurring expenses sample was proper. I would find basis, however, for removing such purchases from the sample if the taxpayer can show that it later began to remit tax on purchases from that vendor during the audit period. In addition, the taxpayer states that items upon which tax was paid were included in the sample. It is my understanding that none of the oil purchases upon which tax was paid were included in the sample. Although I am not aware of any other preciously taxed items in the sample, I will provide the taxpayer with the opportunity to furnish copies of purchase invoices for any sample items upon which tax was paid. Such invoices along with information relating to oil purchases should be submitted to the department's Technical Services Section at P.O. Box 6-L, Richmond, Virginia 23282 within the next 45 days.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner