Tax Type
Retail Sales and Use Tax
Description
Photocopy equipment; Government contractor providing services
Topic
Taxability of Persons and Transactions
Date Issued
03-02-1988
March 2, 1988
Re: Request for Ruling/Sales and Use Tax
Dear*****************
This will reply to your letter of March 7, 1986, in which you request a ruling on the application of the sales and use tax to the sale of photocopies by **********under its contract with the*******. I apologize for the delay in responding to your letter.
FACTS
**********(Vendor) is under contract with an agency of the ************* (Agency) to furnish photocopy equipment for the use of the public at the agency's Virginia facility and to provide management and other services.
The vendor's contract with the agency specifies that the vendor is acting as the agent of the federal government and that the agency bears the entire risk of uncollectible checks and accounts receivable. Persons wishing to make photocopies must purchase magnetic cards from the vendor. The magnetic cards are furnished by the agency and are sold at prices fixed by the agency. Payment for the magnetic cards must be in the form of cash, checks made payable to the agency, or through agency "Deposit Account order Forms." Receipts become the property of the agency rather than the vendor. The vendor is compensated under its contract based on a fixed rate per each copy sold.
The vendor requests a ruling on the application of the sales and use tax to equipment and other items purchased for use in performing its contract, to receipts from the sale of magnetic cards, and to compensation received from the agency for the provision of services.
RULING
I will address the questions posed by the vendor on a separate basis below:
Purchases by Vendor
Under its contract with the agency, the vendor agrees to furnish a number of photocopy machines, as well as paper, ink, other supplies, and maintenance contacts for those machines and other machines furnished by the agency. The vendor asserts that all such items are in turn leased or resold to the agency, thus exempting them from the tax. There is, however, no evidence of this fact in the contract Provided by the vendor.
The application of the tax to purchases made by a federal contractor was addressed in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd. 569 F.2d 811 (4th Cir. 1978). In that case, the federal courts found a federal contractor to be the taxable user or consumer of tangible personal property purchased for use in carrying out its contractual obligations. Specifically, the courts found that the credit of the United States was not bound by the contractor's purchasing agreements with various vendors so as to render the transactions sales to the government. In addition, even though title to the purchased items passed to the government, the courts rejected the contractor's argument that the transactions were exempt sales for resale.
Based upon the foregoing, I must conclude that the vendor generally does not enjoy an exemption on the tangible personal property it purchases in connection with its contract with the agency. This conclusion is based on the fact that I see no evidence that the agency's credit is bound when such purchases are made. The vendor does enjoy the resale exemption, however, with respect to those items that actually pass to the purchasers of the photocopies. For example, paper, staples used in photocopy machines, toner, developer, and other materials that become a component part of finished photocopies may be purchased under resale exemption certificates.
Sales of Magnetic Cards
Based upon the facts presented, it is the agency rather than the vendor that is actually engaged in the sale of magnetic cards that entitle purchasers to make photocopies. This finding is supported by the contractual designation of the vendor as the agent of the agency in regard to the sale of the cards. Further supporting this finding are the vendor's statements that (1) the agency bears the total risk of uncollectible checks and accounts receivable, (2) the agency furnishes the magnetic cards sold, (3) that receipts from the sale of magnetic cards become the property of the agency, and (4) that noncash payments for magnetic cards must be made to the order of the agency. Inasmuch as the federal agency is found to be the seller of the magnetic cards, collection of the sales tax is not required.
Compensation from Agency
Inasmuch as the vendor is not engaged in the sale of photocopies or other tangible personal property, compensation received for its services to the agency are not subject to the sales and use tax.
I trust that this will answer each of the questions posed in your letter. If you would like to discuss this ruling or if further questions arise, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner