Tax Type
Retail Sales and Use Tax
Description
Tree trimming contractor for public utility
Topic
Statute of Limitations
Taxability of Persons and Transactions
Date Issued
07-29-1988
July 29, 1988
Re: § 58.1-1821 Application/Sales and Use Tax
Dear *****************
This will reply to your letter of March 29, 1988, 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 primarily engaged in the performance of tree trimming contracts with public utilities. In connection with this service, the taxpayer produces equipment in Virginia both for use in its own contracts and for sale or lease to other consumers. A recent audit of the taxpayer produced an assessment for equipment and tools used by the taxpayer. The issues raised by the taxpayer are addressed on a separate basis below.
DETERMINATION
Waiver of Time Limitation for the Assessment of Tax
The taxpayer has not presented conclusive evidence that the department's assessment was mailed after the expiration of the waiver of time limitation on assessment of taxes that was executed by the taxpayer. The department will revise its assessments however, if the taxpayer can provide a postmarked envelope showing that the assessment was mailed after the expiration of the waiver.
Statute of Limitations
Based on the facts presented, the department agrees that a six-year audit period was not appropriate in this instance. The audit will be revised to reflect a three-year audit period for all of the taxpayer's locations.
Chippers
The department assessed use tax on chippers manufactured by the taxpayer in Virginia for use in its own tree trimming contracts. "Chippers" consist of equipment, which reduces tree branches into mulch, mounted on trailers. It is my understanding that these trailers have generally not been titled by the taxpayer with the Department of Motor Vehicles.
While the vast proportion of the chippers (as well as the lift trucks referenced below) included in the department's audit were for ultimate use in the taxpayer's tree trimming contracts, a small percentage were sold or leased outright to other consumers. Further, it is my understanding that most finished chippers (and lift trucks) produced in Virginia were placed into a resale inventory from which they were later withdrawn by the taxpayer either for its own use or for resale or lease to other consumers.
When the taxpayer places finished chippers into a resale inventory, they retain their resale status until withdrawn for use by the taxpayer. The use tax on such withdrawals is based upon the cost price of the raw materials used in producing the chippers (see Virginia Regulation 630-10-27, subsections D and E).
The taxpayer is deemed to make a taxable use of a chipper when it is withdrawn from resale inventory for use not only in a lump-sum tree trimming contract, but also a contract where equipment and labor costs are separately stated. The department has traditionally not considered transactions where equipment is furnished with an operator to be taxable leases (see Virginia Regulation 630-10-67.A).
Lastly, I do not find basis at this time for concluding that the chippers in question are exempt from the tax under § 58.1-608.7 of the Code of Virginia. This exemption applies to motor vehicles as defined in § 58.1-2401 of the Code of Virginia upon which the motor vehicle sales and use tax has been paid. The definition of "motor vehicle" found in § 58.1-2401 specifically includes "every vehicle drawn by or designed to be drawn by a motor vehicle." This definition clearly includes trailers such as chippers; however, the taxpayer has not titled its chippers with the Department of Motor Vehicles and paid the motor vehicle sales and use tax. As such, the retail sales and use tax applies until the taxpayer can demonstrate that a motor vehicle sales and use tax has been paid to Virginia or another state.
Lift Trucks
The department assessed use tax on boom assemblies manufactured in Virginia for attachment to lift trucks for use in the taxpayer's tree trimming contracts. "Lift trucks" contain a hollow body into which is blown mulch made by chippers and a boom assembly which enables a worker to trim high tree branches. These trucks are generally required to be titled with the Department of Motor Vehicles. It is also my understanding that the trucks are generally not titled until after the attachment of the boom assemblies.
As is the case with chippers above, when new lift trucks are placed into a resale inventory, they retain their exempt status until withdrawn from inventory for use by the taxpayer. Upon withdrawal, the trucks will be titled in Virginia or another state and applicable motor vehicle sales and use taxes will be paid by the taxpayer. As the Virginia motor vehicle sales and use tax generally applies to all attachments to a motor vehicle at the time of titling, the department will remove from its audit all boom assemblies placed on previously untitled vehicles.
Use Tax Measure
I find that the use tax was properly computed on the full cost price of the property used in Virginia § 58.1-604 of the Code of Virginia provides for proration of the use tax based on actual usage in Virginia under extremely limited circumstances, i.e., when "tangible personal property ...has been acquired for use outside this State and subsequently becomes subject to the (Virginia) tax." (Emphasis added). In this instance, the property was not acquired for use outside the state as the taxpayer exercised first use of the property within Virginia.
Hand Tools
Hand tools withdrawn from the taxpayer's Virginia inventory for use in its own contracts (including contracts where equipment is furnished with an operator) were properly subjected to the tax. Only where the taxpayer can show that hand tools included in the departments audit were actually resold would adjustments be necessary.
Double Inclusion of Items
The department's auditors will analyze this issue and make adjustments to its audit as necessary.
Split-Dump Trucks
These items will be removed from the department's audit provided that the taxpayer can demonstrate that the motor vehicle sales and use tax was paid on the finished vehicles.
Sample Method
As noted above, items used in contracts where equipment is furnished with an operator do not enjoy the resale exemption. As such, the department's sampling of hand tools and other items is not flawed on the basis that these items were primarily held for resale. The department's auditors will, however, review the second issue that you raised and make adjustments to the sample method if necessary.
Bridge Cranes and Paint Booth
Provided that the transactions involving**************** involved only the repainting and installation of bridge cranes already owned by the taxpayer, these transactions will be removed from the department's audit.
The tax will apply, however, to the remaining crane in question and the paint booth purchased by the taxpayer unless the taxpayer can demonstrate that the items lost their status as tangible personal property and became affixed to real estate. These items do not enjoy the industrial exemption as the taxpayer primarily produces tangible personal property for its own use or consumption (see Virginia Regulation 630-10-63.D).
Lastly, the department's auditors will review the remaining items in the taxpayers Exhibit L to determine if credit for tax previously paid to Virginia or other states is due.
The department's auditors will be in contact with the taxpayer to schedule a time for the revision of this audit. All necessary revisions will be completed as soon as practicable and a revised notice of assessment will be issued to the taxpayer.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner