Tax Type
Retail Sales and Use Tax
Description
Contractors
Topic
Taxability of Persons and Transactions
Date Issued
03-14-1985
- March 14, 1985
RE: §58.1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of September 10, 1984 in which you submit an application for correction of sales and use tax assessed to ***** as the result of a recent audit.
FACTS
***** ("*****") is engaged in the building of homes. A recent audit of ***** produced an assessment for the failure to remit the sales and use tax on various items of tangible personal property used by the firm in its construction activities. ***** contests such assessment, asserting that certain of the transactions included in the department's audit represented the purchase of services from subcontractors rather than purchases of tangible personal property for the firm's use or consumption in home construction projects.
DETERMINATION
During the audit period in question, Section 58-441.15 (a) of the Code of Virginia (recodified as Virginia Code Section 58.1-610.A effective January 1, 1985) provided that:-
- Any, person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption. Any sale, distribution, or lease to or storage for such person shall he deemed a sale, distribution, or lease to, or storage for the ultimate consumer and not for resale, and the dealer making the sale, distribution, or lease to or storage for such person shall be obligated to collect the tax...
Accordingly, a subcontractor who performs services with respect to real estate for a general contractor or homebuilder assumes the sales and use tax liability for any tangible personal property furnished in connection with such services. However, it is my impression, based upon information provided by the department's auditor, that the storm windows, landscaping materials, wallpaper, fencing, and railing in question were sold to ***** without installation. Accordingly, no services were performed by subcontractors with respect to real estate and the transactions in question must be deemed taxable retail sales to**** .
Even if the persons providing tangible personal property to ***** also provided installation services, certain of the transactions in question would still be taxable to *****. First, Section 1-40 of the Virginia Retail Sales and Use Tax Regulations (now Section 630-10-40 of the regulations) provided during the audit period:-
- When a nurseryman, florist or other person makes retail sales of shrubbery and: similar items, and as part of the transaction agrees to transplant them on the land of the purchaser for a lump sum, the tax applies to the total charge. The tax does not apply to the charge for transplanting if the charge is separately stated on the invoice.
Accordingly, the transplanting of landscaping materials by the seller of the materials does not make the seller a contractor. In addition, if the seller of storm windows, fencing, and railing is a retailer of such goods, the taxs applies to aII sales of such items under Virginia Code Section 58.1-610.D (formerly Virginia Code Section 58-441.15(d)) and Section 630.-10-27.G of the Virginia Retail Sales and Use Tax Regulations (copy attached).
Lastly, I find your alternative contention that the tax in this case is properly to be collected from the seller rather than the purchaser to be incorrect. The Federal courts have found that the Virginia sales and use taxes are not two separate taxes but "one comprehensive tax on sales," United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff' d. 569 F.2d 811 (4th Cir. 1978). Similarly, the Virginia Supreme Court held in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980) that "[t]he use tax... applies if the purchase was made in Virginia but the sales tax was not paid."
Based upon the foregoing, I must conclude that the tax in this case was properly assessed to as the tax may be assessed to either the seller or purchaser under the Virginia sales and use tax law. Furthermore, the federal courts held in United States v. Forst, supra:-
- Although the seller is legally obligated to collect the tax from the purchaser, the statute makes the tax the legal debt of the purchaser. "....(W)here a state requires that its sales tax be passed on to the purchaser and be collected by the vendor from him this establishes as a matter of law that the legal incidence of the tax falls upon the purchaser." United States v. State Tax Commission of Mississippi, 421 U.S. 599, 607, 95 S. Ct. 1872, 1878 (1975).
Therefore, ***** is the proper party to whom the sales and use tax should be assessed is this case.
Based upon the foregoing, I must consider the assessment issued to be proper. I am willing to reopen this matter at a later time if provided with evidence that the transactions in question, except for transactions involving landscaping materials, represented services rendered by subcontractors as opposed to sales of tangible personal property. Until such information is received, the assessment issued to will remain due and payable.
Sincerely,
W. H. Forst
Tax Commissioner -
Rulings of the Tax Commissioner