Tax Type
Retail Sales and Use Tax
Description
Automotive lifts and lube system; Dock scales; Liability of general contractor
Topic
Taxability of Persons and Transactions
Date Issued
06-29-1988
June 29, 1988
Re: §58.1-1821 Application/ Sales and Use Tax
Dear***************
This will reply to your letter of September 28, 1987 seeking correction of a sales and use tax assessment issued to********(taxpayer), for the period January 1984 through March 1987. This also has reference to additional information submitted to a member of my staff on April 21, 1988.
FACTS
The taxpayer, a construction contractor, was recently audited and held liable for the tax on untaxed material purchases from suppliers. The taxpayer contests the assessment stating that many of the items purchased became a part of realty upon installation by subcontractors who were themselves liable for payment of the tax; that the department should seek payment of the tax from several other vendors who failed to comply with purchase order instructions to separately state or include the tax in billing the taxpayer; and, that based on progress billing methods used by one of its suppliers, sales tax charged was not reflected on the supplier's invoices.
Moreover, the taxpayer contests the assessment on charges for landscaping and amounts charged for sand and dirt, half of which the taxpayer contends represented charges for nontaxable transportation. The taxpayer also seeks the waiver of all penalties and a reduction of interest assessed, based on turnover in its accounting department which caused its unintentional failure to comply with the sales and use tax laws.
DETERMINATION
Based on information recently received from the department's district office all of the taxpayer's purchases from ******** will be removed from the audit. In addition, based on information recently remitted by the taxpayer, the two purchases made from **********will be removed from the audit. Furthermore, since the taxpayer has been reimbursed for taxes assessed on its wardrobe purchases, these amounts will not be removed from the audit.
Virginia Code §58.1-610(A) provides that "[a]ny person who contracts ... to perform construction ... 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 ... for the ultimate consumer ..., and the dealer making the sale ... to ... such person shall be obligated to collect the tax to the extent required by this chapter."
In addition, Virginia Regulation 630-10-27(A), copy enclosed, provides that, "[i]f a supplier of a contractor doing work in Virginia does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier."
Accordingly, the taxpayer, as a general contractor, was liable for the payment of the tax on all of its purchases of materials from suppliers. The department's long-standing position in this regard has been confirmed by the courts. For example, in a case involving the failure of a government contractor to properly remit the tax on its untaxed purchases from vendors, the U.S. Court of Appeals held that, "although the seller is legally obligated to collect the tax from the purchaser, the statute makes the tax the legal debt of the purchaser." U.S. v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd 569 F.2d 811 (4th Cir. 1978), copy enclosed.
In addition, the standard subcontractor agreements entered into between the taxpayer and several of its suppliers, I find no basis for removal from the assessment of items such as a dock scale, hoists, automotive lifts, and lube equipment, whether the taxpayer or its suppliers were responsible for installation of the items. While in some instances the agreements provided for installation by the suppliers, the items so installed have not been shown by the taxpayer to have become permanently affixed to realty upon installation by such suppliers. In the absence of affixation to realty by the taxpayer's suppliers such items were properly included in the audit. However, if the taxpayer is able to provide the department with corrected invoices or other documentation showing sales tax actually remitted by these suppliers in making sales to the taxpayer, consideration will be given to crediting such amounts against the assessment.
With regard to the taxpayer's purchases of venetian blinds, Virginia Regulation 630-10-27(G) treats as retailers all sellers and installers of venetian blinds, fences, window shades, awnings, storm windows and doors, floor coverings, etc. For purposes of this subsection only, a retailer is defined as "any person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of [such] items, and who performs installation as part of or incidental to the sale of [such] items... A retailer must treat such transactions as taxable sales except that installation charges when separately stated on an invoice are exempt from tax."
Based on the foregoing, the total charge for venetian blinds was correctly held taxable in the audit. However, if the taxpayer is able to provide the department with corrected invoices or other documentation showing separately stated amounts for installation labor performed by its venetian blind supplier, such amounts will be removed from the audit.
Moreover, I am not persuaded by documentation recently remitted which shows "tax included" in bids received by the taxpayer from certain suppliers, without additional information showing the amount of tax actually paid by the suppliers to the department for items provided to the taxpayer under such bids.
I also find no basis for correction of the assessment on the taxpayer's purchases of landscaping materials and sand and gravel. Contractors are required to pay the tax on their purchases from landscape businesses of items such as shrubs, trees, bushes, etc., including any non-separately stated charges for transplant labor, whether such items are sold and transplanted in previously developed areas or in new construction projects. In addition, the total charge for sand and dirt, including any non-separately stated charges for transportation, was properly held taxable in the audit pursuant to Virginia Code §58.1-610(A) quoted above. However, if the taxpayer can provide the department with corrected invoices or other documentation showing separately stated charges for transplant labor by its landscaper, or separately stated transportation charges by its sand and dirt supplier such amounts will be removed from the audit.
Further, inclusion of the tax on its purchase orders to certain suppliers did not excuse the taxpayer from the requirement that it seek corrected invoices when these same suppliers failed to properly charge the tax in billing the taxpayer. However, based on additional documentation recently received, I agree to remove from the assessment purchases from ********** In any future audit the taxpayer will be
required to produce invoices from its suppliers showing separately stated amounts for sales tax,-regardless of any notations made on purchase orders to such suppliers. For example, it will not be sufficient for either the taxpayer's purchase orders or its supplier's invoices to state "tax included."
Lastly, Virginia Regulation 630-10-80(C) provides that on a second or subsequent audits "[p]enalty will not be waived ... for other than exceptional mitigating circumstances." Turnover in the taxpayer's accounting department is not sufficient evidence of exceptional mitigating circumstances to justify the waiver of any penalties assessed in this fifth generation audit. However, based on the particular facts and circumstances of this case, a credit will be granted against the penalties assessed in an amount equal to the interest accrued on the assessment since the date of the assessment.
Any documentation requested herein should be remitted to the department's Technical Services Section, office Services Division, at P.O. Box 6-L, Richmond, Virginia 23282, within 60 days of the date of this letter. If this documentation is not received by the department within this time period, a revised notice of assessment will be issued based only on the taxpayer's previous payment of********* and the adjustments indicated above.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner