Tax Type
Retail Sales and Use Tax
Description
Use tax; Fabrication labor
Topic
Collection of Tax
Taxability of Persons and Transactions
Date Issued
11-17-1986
November 17, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear *********************
This will reply to your letter of June 24, 1986 seeking correction of assessments issued in connection with the above referenced businesses for transactions occurring between May, 1980 and March, 1986. Taxpayer has submitted no information in support of its application for correction.
FACTS
In connection with the above referenced businesses, taxpayer was held liable for the tax on certain untaxed purchases of tangible personal property, including, cabinets purchased from and installed by a retail business, charges for the repair of taxpayer's motor vehicles and car wash machinery, and charges for certain administrative items, such as office equipment and supplies. Based on information provided by the department's auditor, it is our understanding that taxpayer contests the imposition of the tax on these items stating that the department's only recourse should be against the vendors who failed to properly collect and report the tax.
In addition, taxpayer was held liable for the tax on its untaxed purchases of fabricated steel. It is our understanding that taxpayer contests the imposition of the tax on these purchases stating that only nontaxable labor charges were involved.
DETERMINATION
§58.1-604 of the Virginia Code imposes a use tax on all purchases, not otherwise exempt, on which no sales tax has been previously paid. "Use" is then defined in §58.1-602 of the code to mean "the exercise of any right or power over tangible personal property incident to the ownership thereof..." 630-10-109 of the Virginia Retail Sales and Use Tax Regulations explains these statutory provisions by stating that, "[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased."
While it is true that taxpayer's vendors in the present case were obligated to collect the tax on their sales to taxpayer, liability for payment and reporting of the tax shifted to taxpayer at the moment it made such untaxed purchases. The department's long standing position in this regard has been confirmed in the courts. For example, the Fourth Circuit Court of Appeals has held that, "[a]lthough the seller is legally obligated to collect the tax from the purchaser, the statute, §58.1-604 of the code], makes the tax the legal debt of the purchaser." See, United States v. Forst, 569 F.2d 811 (4th Cir. 1978).
However, §58.1-608(2) of the code provides an exemption from the tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made, nor services rendered by repairmen for which a separate charge is made." (Emphasis added) Therefore, if taxpayer can produce invoices from its auto repair and car wash equipment repair vendors showing that they separately stated charges for all parts, materials and supplies sold from their charges for repair labor, I will consider removal of such separately stated repair labor charges from the audit.
In addition, §58.1-603 of the Virginia Code imposes a sales tax on the retail sale of all tangible personal property in this state. Subsection (16) of §58.1-602 then defines a sale to mean and include, "the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication..."(Emphasis added).
Fabrication is defined in §630-10-37(A) of the regulations as "[a]n operation which changes the form or state of tangible personal property ..[and] is distinguished from repair which is an operation that restores a used or worn piece of tangible personal property." The regulation continues that the sales and use tax applies, "to charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work." For example, "a tailor who makes an article of wearing apparel from materials furnished by the customer must collect and pay the tax on the charge for making the apparel."
Therefore, I must conclude that taxpayer's untaxed purchases of fabricated steel were properly held subject to tax in the audit.
Based on all of the foregoing, I find no basis at this time for correction of any portion of the audit assessment. However, as stated above, I will consider adjustment of that portion of' the assessment concerning automobile repair and car wash equipment repair services upon receipt within 30 days of this letter of invoices containing separately stated labor charges. Taxpayer should remit such invoices to the department's Technical Services Section, office Services Division, P.O. Box 6-L, Richmond, Virginia 23282. I have also enclosed the public document copy of a ruling recently issued by the department based on facts almost identical to those presented in this case.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner