Tax Type
Retail Sales and Use Tax
Description
Computers; Government contractor
Topic
Taxability of Persons and Transactions
Date Issued
07-28-1989
July 28, 1989
Re: Request for Ruling: Sales and Use Tax
Dear**********************
This will reply to your former controller's letter dated May 15, 1989, in which he requested a ruling on the application of the sales and use tax to*********** ("The Taxpayer").
FACTS
The Taxpayer, a Maryland corporation primarily engaged in government contracting, orders and installs computer equipment for the federal government as an end-user at various government installations around the United States. Under a prime contract with the federal government, the Taxpayer procures computer equipment; all orders are placed with the manufacturers from the Taxpayer's headquarters in Maryland and the equipment is shipped to a subcontractor's warehouse located in Virginia.
The equipment is subsequently transshipped by the subcontractor to its final destination (i.e. the government installation) where it is installed by the Taxpayer. Further, the Taxpayer makes no use of the computer equipment while it is in storage subject to transshipment from the warehouse.
Specifically, the Taxpayer asks whether it is exempt from the tax when purchasing the equipment in connection with its government contract.
RULING
Generally, persons who contract with the federal government to Provide services and in connection with those services provide tangible personal property are deemed to be the users and consumers of the tangible personal property and must pay the tax on their purchases. See Virginia Regulations 630-10-45 and 630-10-27, copies enclosed.
However, as noted in the enclosed June 23, 1888 ruling, a tax liability is not incurred by persons who contract with the federal government for the sale of tangible personal property. In such cases the government contractor may purchase property exempt from the tax for resale to the federal government. In addition, the subsequent sale to the federal government is exempt from the tax under Virginia Code §58.1-608(18).
In the instant case, the Taxpayer has contracted with the federal government for the sale of tangible personal property, rather than for the provision of a service. Therefore, the Taxpayer may purchase the computer equipment exempt from the tax using Form ST-10, Resale Exemption Certificate, copy enclosed, and also the Taxpayer is not liable for collection of the tax on its sales to the federal government as long as the sales are pursuant to official purchase orders and are paid using government funds.
If you have any further questions, please contact us.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner