87-219 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Audio and video equipment sales to contractors

Topic

Taxability of Persons and Transactions

Date Issued

10-02-1987

October 2, 1987

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

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

This will reply to your letter of March 13, 1987, 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 engaged in the sale of audio and video equipment. A recent audit of the taxpayer produced an assessment for its failure to collect the sales tax on equipment furnished to contractors in connection with the contractors' performance of real estate construction contracts.

The taxpayer contests the assessment, contending that the sales to the contractors were exempt sales for resale as the equipment sold retained its status as tangible personal property. Alternatively, the taxpayer argues that its sales of video equipment to one contractor are exempt under §58.1-608.12 of the Code of Virginia as "amplification, transmission and distribution equipment used...by cable television systems."

DETERMINATION

§58.1-610.A of the Code of Virginia provides:

- 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

As the equipment sales in question were to contractors who were engaged in real estate construction projects and as the equipment was furnished by the contractors in connection with real estate construction contracts, the sales tax was properly assessed in this instance.

There are instances in which a contractor respecting real estate may also act as a retailer of tangible personal property. When a contractor indeed acts in the capacity of a retailer, he may purchase property for resale from vendors under a resale certificate of exemption, Form ST-10. An instance in which this may be done is when a contractor enters into a contract to furnish tangible personal property that is separate from a real estate construction contract.

It has not been demonstrated in this case, however, that the contractors' purchases from the taxpayer were in connection with separate contracts for the provision of tangible personal property. Nor did the taxpayer obtain resale certificates of exemption from the contractors.

I also do not find basis for relief of the tax under the provisions of §58.1-608.12 of the Code of Virginia, which provides an exemption from the sales and use tax for:

- Broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, cable television systems, or concerns which are under the regulation and supervision of the Federal Communications Commission and amplification, transmission and distribution equipment used or to be used by cable television systems.

Under this statute, the taxpayer contests the assessment of tax on the sale of a cable television equipment which the purchasing contractor in turn furnished to a governmental agency in connection with a real estate construction contract. The cable television system is used by the agency in monitoring highways.

The taxpayer contends that the statute is drafted in such a manner that "amplification, transmission and distribution equipment used or to be used by cable television systems" need not be used in broadcasting in order to gain exemption from the tax. However, such an interpretation overlooks the history and legislative intent of the statute altogether. The enclosed legislative impact statement makes clear that the 1980 legislation extending an exemption to cable television systems was merely intended as an expansion of the existing "broadcasting" exemption.

Further, the statute requires that broadcasting, transmission, amplification and distribution equipment be used by a cable television system in order to be exempt. Similarly, Virginia Regulation 630-10-88.D provides:

- The tax does not apply to broadcasting, amplification, transmission, and distribution equipment and parts and accessories thereto and towers purchased for use by cable television systems.

Thus, the usage of cable television equipment by other than a cable television system is not exempted. In this case, the equipment is purchased by a contractor for ultimate installation in a governmental facility. As the equipment will not in fact be operated by a cable television system, but by a governmental agency, the tax applies.

Although I do not find basis for relief based on the issues discussed above, the department is willing to remove from its audit any separately stated installation charges in connection with sales to ***********. However, documentation of these charges will be necessary in order for any revisions to be made. Such documentation should be furnished to the department's Technical Services Section at P.O. Box 6-L, Richmond, Virginia 23282 within the next thirty days.

In addition, the department has already revised its audit to delete the duplicative entries identified by the taxpayer.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner