Tax Type
Retail Sales and Use Tax
Description
SALE AND INSTALLATION OF PUBLIC SCHOOL EQUIPMENT
Topic
Exemptions
Reports
Date Issued
04-01-1992
SALE AND INSTALLATION OF PUBLIC SCHOOL EQUIPMENT
GOVERNMENTAL EXEMPTION AND PURCHASES FOR RESALE. Sales of tangible personal property to governments, including public school systems, are exempt from the sales and tax under Va. Code § 58.1-608(A)(1)(e). Tangible personal property for resale to a public school system may be purchased exempt from the tax under a resale exemption certificate.
CONTRACTORS. By contrast, purchases by contractors for use in performing a contract for the sale and installation of items which become realty require the contractor to pay the tax on the tangible personal property at the time of purchase. The tax is then passed on to the client, e.g., a public school system, as part of the contract price.
However, there are three exceptions to this general rule:
1. Va. Code § 58.1-610(B) permits a public school system to purchase materials itself
and then turn the materials over to a contractor for installation only, without subjecting the contractor to tax on the materials.
2. A school system can let separate contracts for (a) the furnishing of property that will become affixed to realty, and (b) the installation of the property. To meet this exception, the bidding and acceptance of contracts for the property and its installation must be totally separate and distinct.
3. Va. Code §58.1-610(D) allows persons selling and installing certain items (fences, venetian blinds, window shades, awnings, storm windows and doors, floor coverings, cabinets, kitchen equipment, window air conditioning units, and other like or comparable items) to be treated as retailers, even if the items become affixed to realty.
This exception is explained in greater detail below.
CERTAIN INSTALLATION CONTRACTS. As noted under exception 3 above, certain persons selling and installing tangible personal property are deemed to be retailers even though the property becomes part of real estate upon installation. This exception is limited by law only to "retailers" of those items delineated above. The following school equipment is also deemed to be "like or similar" items:
Basket Racks Laboratory Hoods
Benches Library Shelves
Cafeteria Equipment Lockers
Laboratory Cabinets and Furniture Stage Curtains
Under Virginia Regulation 630-10-27(G), the exception is further limited to "true" retailers, i.e., persons who maintain a retail or wholesale place of business, an inventory of the products in the above paragraph (or materials which will be incorporated into the products), and who performs installation as part of or incidental to the sale of the above products.
To the extent that both of these tests are met, the person furnishing and installing the property is deemed to be a retailer. As such, he can purchase the property under a resale exemption certificate and sell it tax exempt to the public school system.
If the person furnishing and installing the property does not meet both tests, he is deemed to be a contractor on any property actually affixed to realty and must pay the tax on the purchase price of the property. This applies even when the property is furnished and installed pursuant to a contract with a public school system.
TANGIBLE VS REAL PROPERTY. The following list of items is generally considered to become real property upon installation and thus require the contractor who furnishes and installs the property to pay tax on its purchase price:
Auditorium Seats
Basketball Backboards
Bleachers (bolted to back wall and floor)
Chalk/Bulletin Boards (bolted to wall)
Flag Poles
Folding Partitions
The above list is exemplary and is not intended to be all inclusive.
CONCLUSION. The general rule is that contractors are subject to the tax on any property furnished and affixed to real estate under contracts with public school systems. The school system's exemption from the tax does not extend to the contractor.
However, contracts may legally be structured so as to avoid the tax (as noted in exceptions 1 and 2) and some transactions may not be subject to the tax even when property is affixed to realty (see exception 3). If a public school system and its contractor wish to take advantage of these exceptions, great care should be exercised to ensure that the exceptions actually apply.
FOR ADDITIONAL INFORMATION. Questions may be directed to the Department of Taxation, Office Services Division, Taxpayer Assistance Section, P. O. Box 6-L, Richmond, Virginia 23282, (804) 367-8037.
Rulings of the Tax Commissioner