Tax Type
Retail Sales and Use Tax
Description
Government contractor; Service contracts
Topic
Taxability of Persons and Transactions
Date Issued
04-28-1989
April 28, 1989
Re: Ruling Request/ Sales and Use Tax
Dear*****************
This will reply to your letter of December 20, 1988 seeking a ruling on the application of the sales and use tax to the purchase by *************(taxpayer) of equipment under its contract with a federal government agency. This also refers to contractual documentation recently submitted to the department in support of this ruling request.
FACTS
At the end of its facilities management/services contract for a federal government agency, the taxpayer was asked by the agency to procure certain computer hardware and software for the agency's use, using funds remaining available under its management contract. It was determined by the agency that since the funding was already in place under the management contract to procure the equipment, it was proper for the agency to acquire the equipment pursuant to the existing contract rather than execute a new contract and reappropriate the funding.
The equipment purchased by the taxpayer was totally unrelated to its management/services contract with the government, and was at no time used by the taxpayer in the performance of its duties under the contract. You explain further that the government exercised complete control and direction over the equipment purchased and took title immediately upon delivery of the equipment.
You ask whether you may purchase the above described equipment exempt of the tax for resale to the government in accord with a ruling of the department dated June 23, 1988.
RULING
By ruling dated June 23, 1988, the department determined that the resale exemption applied to the purchase by a federal government contractor of hardware, software and related equipment under its contract to provide a computerized data retrieval system for the government.
However, unlike the contract addressed by the department in this prior ruling, the contract in the instant case was for the provision of a service to the government.
The application of the tax to purchases by service contractors was addressed in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977) aff'd, 569 F. 2d 881 (4th Cir. 1978), copy enclosed. In that case, the federal courts found a federal contractor to be the taxable user and 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. (See also, a November, 1986 ruling of the department enclosed)
I see no evidence in the contractual documentation recently submitted by the taxpayer to support an inference that the government agency's credit was bound when the taxpayer made the subject equipment purchases. Therefore, I find no basis for extending either the resale exemption or the governmental exemption to the taxpayer's equipment purchase.
I hope that the foregoing has responded to your question, but let us know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner