86-242 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Lumber fabricator

Topic

Taxability of Persons and Transactions

Date Issued

11-28-1986

November 28, 1986

Re: Virginia Code §58.1-1821 Application
Retail Sales and Use Tax

Dear *****************

This is in reply to your letter of March 25, 1986 in which you make application for correction of the recent Virginia Retail Sales and Use Tax assessment issued to your client,************* (Company).

FACTS

Primarily, Company is a retailer engaged in the business of selling lumber, windows, doors and related hardware. The department assessed additional tax in three areas of Company's activities, (1) nontaxed sales, (2) nontaxed purchases of miscellaneous supply items, and (3) nontaxed purchases of small equipment and capital items. You are only contesting the portion of the assessment that resulted from the first area of Company's activities - nontaxed sales.

At the request of their customers, Company will cut or shape lumber to suit customer specifications. Company will cut or shape either the lumber that they sell or lumber that is brought in by a customer. In either case, a separate labor charge is stated on the bill. It is this untaxed labor charge for cutting or shaping lumber that is the basis for the department's assessment. The department determined that Company was performing a fabrication operation, and as such, should have been collecting Virginia Retail Sales and Use Tax on the total charge for the fabrication including labor, even if charges for labor are separately stated. You contend that Company is not performing a fabrication operation, but is instead more accurately performing a service as defined under Virginia Retail Sales and Use Tax Regulations §§630-10-97.1 and 630-10-95.

DETERMINATION

"Sales price" is defined under Virginia Code §58.1-602.17 as:

- ... the total amount for which tangible personal property or services are sold, including any services that are a part of the sale.... "Sales price" shall not include ... (ii) an amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold....

As you can see from the above definition of "sales price", services are exempt from taxation only when two conditions are met, (1) there is a separate charge for the services and (2) the labor or services are "rendered in installing, applying, or remodeling or repairing property sold."

Virginia Retail Sales and Use Tax Regulation §630-10-37 provides that:

- "An operation which changes the form or state of tangible personal property is fabrication. Fabrication is distinguished from repair which is an operation that restores a used or worn piece of tangible personal property."

Company, in cutting and shaping lumber for its customers, is not performing an operation which "restores a used or worn piece of tangible personal property." Therefore, the service that Company performs is not a "repair" as defined by regulation. Even though Company may be making a separate charge for the services rendered, the services are not rendered in the repair of property sold.

Since the cutting or shaping of lumber "changes the form or state" of the lumber, it is clearly "fabrication" as defined by regulation. This same regulation section provides that the tax applies to the total charge for the fabrication, including labor, even if the labor charge is separately stated. Furthermore, the tax is equally applicable to the separate charge for fabrication when the customer supplies the materials used in the fabrication work.

Therefore, based upon the information presented, I find no basis to relieve Company of the instant assessment.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner