Tax Type
Retail Sales and Use Tax
Description
Gas and sewer pipeline contractor; Purchases for government contract
Topic
Exemptions
Property Subject to Tax
Date Issued
07-17-1991
July 17, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This will reply to your letter of April 17, 1990 and subsequent correspondence seeking correction of a sales and use tax assessment issued to ************** (the "Taxpayer").
FACTS
The Taxpayer is a gas and sewer pipeline contractor. The Taxpayer was audited for the period January 1987 through December 1989 and held liable for the tax on untaxed purchases made pursuant to a contract with the City of**********he Taxpayer has paid the assessment in full.
The Taxpayer was issued a tax exemption certificate, Form ST-12, by the City of*********** which it used both within and without Virginia to make purchases exempt of the tax. The Taxpayer seeks correction of the assessment since at the time of making the purchases it believed in good faith that it qualified for tax exemption.
DETERMINATION
Va. Code §58.1-608(10(e) provides an exemption from the sales and use tax for "[t]angible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States." However, Va. Code §58.1-610(A) deems real estate contractors to be the taxable users of all tangible personal property purchased in connection with the construction, reconstruction, installation, repair or other services with respect to real estate.
This code section is interpreted in Virginia Regulation (VR) 630-10-27(J), which provides in part that the tax applies to purchases of tangible personal property for use and consumption by contractors in connection with real property construction. It provides further that "[o]nly in instances where the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental entity will such purchases be deemed exempt from the tax." (Emphasis added.) As such, the regulation is consistent with United States v. Forst, 142 F. Supp. 920 (W.D. Va. 1977), aff'd, 569 F.2d 881 (4th Cir. 1978), which upheld the application of the Virginia tax to purchases made by a government contractor.
Accordingly, while I am sympathetic to the Taxpayer's situation, the law and regulations cited above are clear regarding the Taxpayer's liability for the tax in this case. Notwithstanding, based on the circumstances presented, I find basis for the waiver of all penalties assessed in this case. As such, the Taxpayer will receive under separate cover a refund of penalties paid in the amount of
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner