88-42 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Contractor installation of fire suppression system and industrial scale

Topic

Taxability of Persons and Transactions

Date Issued

03-18-1988

March 18, 1988

Re: Virginia Code §58.1-1821 Application
Retail Sales and Use Tax

Dear*****************

This is in reply to your letter of April 22, 1987 in which you make application for correction of the assessment resulting from the recent Retail Sales and Use Tax audit of***************.

FACTS

There are two areas of this recent audit being contested by************* (Taxpayer). The first area involves the installation of a Halon fire suppression system. Taxpayer contracted with an out-of-state subcontractor to provide materials and labor for the installation of the complete fire suppression system. The second area that you are contesting involves the installation of an "in the floor" industrial scale. Taxpayer constructed the pit in the floor and contracted with a subcontractor to provide materials and labor for the installation of the complete "in the floor" scale.

You are contesting 'he portion of the audit resulting from the purchase these two items. In both cases, your contend that these two items are incorporated into real property.

DETERMINATION

The application of the Virginia Retail Sales and Use Tax to contractors is set forth under Virginia Code §58.1-610. This section provides in part:

- A. Any person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service 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, distribution, or lease to or storage for such person shall be deemed a sale, distribution, or lease to or storage for the ultimate consumer and not for resale, and the dealer making the sale, distribution, or lease to or storage for such person shall be obligated to collect the tax to the extent required by this chapter.

This area is further detailed under Virginia Regulation 630-10-27.

- Tangible personal property incorporated in real property construction which loses its identity as tangible personal property and becomes real property is deemed to be tangible property used or consumed by the contractor.

Based upon the available information and upon the facts as they relate to Taxpayer, both items were incorporated into realty and as such, have lost their identity as tangible personal property. Therefore, the subcontractor is deemed to have purchased such tangible personal property for his use or consumption. Accordingly, the subcontractors that provided the materials and installed the systems are liable for the tax, not the Taxpayer.

The audit will be revised to remove these two items and a revised notice of assessment will be issued.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner