Tax Type
Retail Sales and Use Tax
Description
Manufacturing; Cleaning agents; Labels
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
09-21-1988
September 21, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear**************************
This will reply to your letter of June 14, 1988, seeking the correction of an assessment issued in the above referenced case for the period February 1985, through October 1987.
FACTS
************* ("The Taxpayer"), is engaged in the fabrication of structural steel products both for its own use in real estate construction projects and for sale to customers. The Taxpayer is contesting the application of the tax to purchases of materials used, consumed, and sold within the Commonwealth.
DETERMINATION
§630-10-27(E) of the Virginia Retail Sales and Use Tax Regulations addresses the application of the tax to persons operating both as fabricators and as contractors and provides that "[a]ny person who is principally [greater than 50%] fabricating tangible personal property for sale or resale shall" be treated as a retailer.
This section further provides that, as a retailer, if the Taxpayer "withdraws tangible personal property from inventory for use and consumption in the performance of real property construction contracts", he will be liable for tax based upon the fabricated cost (cost of materials, labor, and overhead charged to work in process) of the property withdrawn. (Emphasis added).
Therefore, if the Taxpayer as a fabricator maintains an inventory and withdraws tangible personal property for use in real estate construction contracts, then the tax will be imposed based on the fabricated cost price. However, based upon the information provided by the Taxpayer, they do not maintain an inventory (except for a small number of connector plates), and purchase materials for use in real estate construction contracts on a job-by-job basis.
Therefore, if the Taxpayer maintains no inventory of raw materials or finished products, the provisions of Regulations §630-10-27(E), relating to the base for computing the tax on withdrawals from inventory, are inapplicable when the Taxpayer performs construction contracts. In this situation, the Taxpayer is liable for the tax on the cost price of the materials used in the construction project.
When the Taxpayer acts as a fabricator and seller of the steel products, the Taxpayer must collect the tax upon the retail selling price of the steel products. In this situation, the Taxpayer can purchase materials under a resale exemption certificate.
This determination is subject to verification by the Department of the facts presented. If it is found that the Taxpayer maintains no inventory except for a small number of connector plates and purchases materials on a job-by-job basis, then the audit will be adjusted accordingly.
If I can be of further assistance, please contact me.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner