Tax Type
Retail Sales and Use Tax
Description
Environmental enclosures fabricated for government
Topic
Taxability of Persons and Transactions
Date Issued
09-21-1988
September 21, 1988
Re: Request for Ruling/Sales and Use Tax
Dear***************
This will reply to your letter dated August 16, 1988 in which you request a ruling on the applicability of the sales and use tax to a contract between the United States Department of the Navy and your client, ********************* (taxpayer).
FACTS
The taxpayer is an Alabama corporation, licensed in Virginia as a contractor and currently involved in several construction projects in this state. The taxpayer has recently been awarded a contract with the Department of the Navy to fabricate certain "environmental enclosures" for use at the********* in **********. This is a "supply contract" and not a real estate construction contract. The taxpayer will be responsible for the fabrication, assembly and delivery of the environmental enclosures, which will consist of a series of sectional modules. The environmental enclosure modules will be produced in prefabricated units by the taxpayer and delivered to the Navy in that form to be assembled into the environmental enclosures. Final erection of the modules into a single structure will be performed by the Navy.
The taxpayer desires to know (1) will it be entitled to purchase as exempt purchases for resale all materials and supplies that will enter into the production of or become component parts of the finished environmental enclosures? (2) will it be entitled to claim the benefit of the production exemptions provided in §58.1-608(1) of the Code of Virginia and Virginia Regulation 630-10-63? (3) will the sale of the environmental enclosures to the United State Navy be exempt from the tax pursuant to §58.1-608(18) of the Code of Virginia? and (4) will it be required to file a separate certificate of registration with respect to its place of business on
DETERMINATION
I will address each of the issues set forth above on a separate basis below:
(1) While the taxpayer is principally a real estate construction contractor, it will operate exclusively as a manufacturer for purposes of this contract. Virginia Regulation 630-10-27(B) provides that "[a] person who is a using and consuming contractor...may also be engaged in the business of selling tangible personal property....If so, the person is a dealer with respect to such sales...[and] may purchase the tangible personal property under a resale exemption certificate." Additionally, VR 630-10-27(C) states that "[r]aw materials, component parts and other tangible personal property to be fabricated for sale may be purchased under a resale certificate of exemption." Therefore, the taxpayer is entitled to purchase tangible personal property which will become a part of the environmental enclosures with respect to this specific contract under a resale certificate of exemption.
(2) VR 630-10-27(F) permits fabricators to take the status of industrial manufacturers when manufacturing constitutes their principal activity. Since the fabricating and manufacturing of the environmental enclosures will be the sole activity of the taxpayer at the******** site, the taxpayer is entitled to the production exemptions set out in VR 630-10-63 with respect to its activities at that site. However, I would point out that any machinery, tools, etc. which are to be purchased for use at this exempt site and also for use in a taxable activity will be subject to the preponderance of use test set forth in VR 630-10-63(D).
(3) As provided in §58.1-608(18) of the Code of Virginia and VR 630-10-45, the tax does not apply to sales to the United States government if the purchases are pursuant to official purchase orders and are paid for out of public funds. This is a contract for the sale of tangible personal property to the United States government and the taxpayer has received an exemption certificate, Form ST-12, from the United States Navy. Accordingly, the taxpayer's final sale of the environmental enclosures is exempt from Virginia sales and use tax.
(4) As provided in VR 630-10-21 and VR 630-10-26(B), a dealer must obtain a Certificate of Registration. Therefore, the taxpayer is required to file a separate application for the ************** site.
I trust the above information answers any questions you may have regarding the applicability of the sales and use tax to this contract. Should you have additional questions please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner