Tax Type
Retail Sales and Use Tax
Description
Fabrication labor; Cutting lumber
Topic
Taxability of Persons and Transactions
Date Issued
06-20-1988
June 20, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear***********
This will reply to your letter dated March 24, 1988 in which you seek correction of sales and use tax assessed to ********** as the result of a recent audit.
FACTS
******* ("taxpayer") is engaged in the business of cutting lumber and making furniture. The taxpayer was held liable for sales and use tax as the result of an audit for the period July 1, 1984 through May 31, 1987 on labor charges associated with the manufacture of furniture. The department's auditor determined that the taxpayer was in the fabrication business and should have collected the tax on the total charge for the fabrication, including separately stated labor. The taxpayer is contesting the application of tax to these labor charges and contends that when he registered with the department he was told that the tax did not apply to labor.
DETERMINATION
"Sales price" is defined under §58.1-602(17) of the Code of Virginia as:
-
- [T]he total amount for which tangible personal property or services are sold, including any services that are a part of the sale...without any deduction on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
The only exclusion for labor under the Virginia Retail Sales and Use Tax is found in the above section of the Code of Virginia, which further states that "[s]ales price shall not include...(ii) an amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold."
Fabrication is defined under Virginia Regulation 630-10-37 as "[a]n operation which changes the form or state of tangible personal property." The regulation further provides "[t]he tax applies to the total charge for the fabrication of tangible personal property on a special order for a consideration, including labor, even if charges for labor are separately stated."
Clearly, fabrication labor is not within the meaning of "installing, applying, or remodeling or repairing property sold." Therefore, no exclusion from the tax exists for fabrication labor and the taxpayer should have charged its customers the tax on these labor charges.
The department's policy on the application of the tax to charges for the fabrication of tangible personal property, including labor, dates back to 1966 when the first sales and use tax regulations were issued. I would advise the taxpayer to obtain a written ruling from the department when there is a question about the application of the Virginia Retail Sales and Use Tax to a specific situation.
Based upon the foregoing, I find no basis for a correction of the assessment, which is now due and payable.
If you have any questions about the issues raised in this determination, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner