86-255 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Boiler repairs performed for non-profit school

Topic

Taxability of Persons and Transactions

Date Issued

12-29-1986

December 29. 1986

Re: §58.1-1821 Application/Sales and Use Tax

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

This will reply to your letter of September 4, 1986, in which you submit an application for correction of sales and use tax assessed to************** as the result of a recent audit.

FACTS

*********************** ("Taxpayer") is a mechanical contractor engaged in performing installation, repair, conversion, and other services with respect to machinery affixed to real estate. A recent audit of the taxpayer produced an assessment for its failure to remit the sales and use tax on materials used in a contract for the conversion of a coal fired boiler to use wood as its power source. It is my understanding that the boiler in question was affixed to realty. However, the taxpayer requests relief of the tax assessed on the materials used in the conversion process, stating that the nonprofit college for which the conversion contract was performed provided the taxpayer with a certificate of exemption for the project.

DETERMINATION

Although nonprofit colleges and other institutions of learning enjoy an exemption from the sales and use tax on their purchases pursuant to §58.1-608.23 of the Code of Virginia, real estate construction contractors performing work for such institutions do not enjoy the same exemption. §58.1-610 of the Code of Virginia specifically provides the following:

- Any person who contracts ... 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 ... to ... such person shall be deemed a sale ... to ... the ultimate consumer and not for resale, and the dealer making the sale ... to .. such person shall be obligated to collect the tax... Emphasis added

This statutory provision is specifically referenced in Virginia Regulation 630-10-27, published on January 1, 1985 which states, in part:

- No sale to a contractor is exempt on the ground that the other party to the contract is a governmental agency, a public service corporation, a nonprofit school, or nonprofit hospital, or on the ground that the contract is a cost-plus contract. Emphasis added

A similar statement was also contained in §1-27 of the Virginia Retail Sales and Use Tax Regulations published on January 1, 1979. The applicability of the sales and use tax to purchases by government contractors was also addressed in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd. 569 F.2d 811 (1978).

Based upon the foregoing, the materials used by the taxpayer in its boiler conversion contract were rightfully included in the department's audit. Further, I see no basis for relief due to the fact that the nonprofit college for which the work was performed provided the taxpayer with a certificate of exemption for the project. §58.1-623 of the Code of Virginia provides that exemption certificates are to be provided by the purchaser of tangible personal property to the seller of the property. In this case, the taxpayer was not selling the property to the college, but was furnishing the property under a contract respecting real estate. As such, the taxpayer was the taxable end user or consumer of the property and the exemption certificate furnished by the college had no bearing. While I regret that the exemption certificate furnished by the college may have caused some confusion on the part of the taxpayer in this case, it must be recognized that the department's policies on such contracts and the proper usage of exemption certificates are of long standing.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner