Tax Type
Retail Sales and Use Tax
Description
Contractor; Temporary storage of materials for jobs outside the state
Topic
Taxability of Persons and Transactions
Date Issued
10-26-1989
October 26, 1989
Re: 58.1-1821 Application: Sales and Use Tax
Dear**************
This is in reply to your letter of August 18, 1989, on behalf of ********** (the taxpayer), in which you submit an application for correction of sales and use tax assessed for the period of February 1985 through April 1988.
FACTS
The taxpayer is in the business of stone floor and stone wall construction, which would classify the taxpayer as a contractor with respect to real estate. The taxpayer purchases the majority of its raw materials from out-of-state suppliers, takes possession of the materials in Virginia and subsequently uses them on jobs in Virginia, Maryland and the District of Columbia. The taxpayer was audited for the period of February 1985 through April 1988 and was assessed on July 11, 1988 for tax, penalty and interest due on untaxed out-of-state purchases. The taxpayer is seeking relief from the sales and use tax assessed on the grounds that a portion of the raw materials purchased is used on jobs outside the state of Virginia, and that the taxpayer paid the sales tax to the out-of-state vendors at the time of purchase.
DETERMINATION
§630-10-27 of the Virginia Retail Sales and Use Tax Regulations addresses contractors with respect to real estate. Subsection A of this regulation defines the basic rules as it applies to contractors and states, in part, the following:
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- A contractor is defined as any person who contracts 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, whether such person be a prime contractor or subcontractor. Unless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.
A contractor with respect to real estate is the user or consumer of all tangible personal property used in the performance of a contract and is required to pay the sales or use tax on all such material. Subsection I of Regulation 630-10-27 deals with construction material temporarily stored in Virginia and states the following:
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- Construction contractors may purchase exempt from the tax construction materials for temporary storage in Virginia to be used in exempt construction projects in other states or foreign countries. Contractors entitled to this exemption may obtain certificates of exemption upon written request to the Department of Taxation. The request should include information to show that the construction materials could be purchased by the contractor free from the sales or use tax in the other state or foreign country.
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- This exemption is restricted to construction materials incorporated into exempt real property construction. ... The tax applies to all other construction materials, temporarily stored in Virginia, that will be incorporated into real estate construction projects outside Virginia. Emphasis added.
As can be seen from the above, all material temporarily stored in Virginia for subsequent use outside the state would be subject to the Virginia sales and use tax unless used on a tax exempt job in the other state. Furthermore, it is the department's position that the taxpayer exercised first use of the materials in Virginia at the time possession was taken and storage was made in Virginia. This position is substantiated under 630-10-51 in the Virginia Retail Sales and Use Regulations which states, in part, "the tax applies to the first use in Virginia of tangible personal property purchased elsewhere in a transaction which would have been taxed had the transaction occurred in Virginia... ." There is no credit available for taxes paid to other states when first use is made in Virginia.
In view of the facts stated in your letter, I will allow the taxpayer an additional thirty days to produce records supporting his position that the assessment for the period of February 1985 through April 1988 is invalid. If the taxpayer should need further documentation concerning the nature of the assessment or if you should have any further questions, please feel free to contact the auditor,*********in our**********Virginia District office at ***********.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner