Tax Type
Retail Sales and Use Tax
Description
Retail sales; Materials furnished with management services
Topic
Taxability of Persons and Transactions
Date Issued
06-29-1988
June 29, 1988
Re: Virginia Code §58.1-1821 Application
Retail Sales and Use Tax
Dear**************
This is in reply to your letter in which you make application for correction of the sales and use tax assessed to your firm,**********************.
FACTS
************* (Taxpayer) is a Virginia firm in the business of project management and construction consulting. The taxpayer enters into a contract with the owner of a construction project to manage the design and construction process of a physical facility. The contract between the taxpayer and the owner of the construction project also requires that the taxpayer provide certain materials and services. The taxpayer purchases materials and services pursuant to the requirements of the contract and is reimbursed by the owner of the project for the cost of these materials and services.
You contest the assessment of use tax on these materials purchased, contending that the taxpayer is acting as the agent for the owner of the project and as such is not making a taxable use of the materials purchased.
DETERMINATION
The Virginia Retail Sales and Use Tax is a broad-based tax imposed upon the retail sale of tangible personal property in this State. Only those transactions specifically exempted by statute may be made exempt of the tax. While Virginia Code §58.1-608.2 exempts, "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements...," there is no exemption for tangible personal property purchased in connection with the provision of such a service.
In order for the Taxpayer to purchase the property specified in the "reimbursable costs" section of the contract exempt from the tax, the purchase would have to be made by the taxpayer, (1) under a true agency relationship with the owner of the property, or (2) not in connection with furnishing services under the contract, but for resale.
Based upon the guidelines set out by the court in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977) (copy enclosed), the key factor in making the determination that an agency relationship existed in order to determine who is actually making the purchase, is whose credit is bound by the transaction. Based upon the information that has been furnished to the department, there is no indication that the credit of the property owner was bound in the contested transactions. The purchases were made by the taxpayer, in the name of the taxpayer and the owner of the property was not obligated in any way to the seller for the purchase of the goods. Further, there is no evidence to suggest that the property owners in question would generally have enjoyed an exemption from the tax if they had purchased the property themselves. Accordingly, I find no basis to support your contention that the purchases were made by the taxpayer as the agent for the property owner.
Based upon the contract that you have furnished to the department, the purchases were made in connection with the services that the taxpayer was required to furnish under the contract. However, even if this was not the case and the purchases were made for resale by the taxpayer, the taxpayer would be liable to collect and to remit taxes on the resale to the property owner.
I find no basis to grant the requested relief.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner