Tax Type
Retail Sales and Use Tax
Description
Lump sum charges; Sales and installation of fencing products
Topic
Taxability of Persons and Transactions
Date Issued
12-28-1992
December 28, 1992
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This will reply to the letter of January 14, 1992 in which*********** (the Taxpayer), requests reconsideration of my determination of December 21, 1991 regarding the assessment of sales and use tax.
FACTS
The Taxpayer is engaged in the sale and installation of fencing products but does not separately state the installation charges on its customer's invoice. For internal record keeping purposes the Taxpayer itemizes materials cost and fabrication/installation charges and remits the tax on the materials cost only.
The Taxpayer was advised by letter dated February 4, 1986 of the proper method for collecting tax where installation charges are a component of the sales price. However, in this fourth generation audit the Taxpayer continues to invoice its customers using a lump sum method. The Taxpayer requests reconsideration of the previous determination on the basis that while the corporation itself was properly notified of the correct method for invoicing, there has been a change in responsible parties and the current officers should not be bound by written notice given to previous management.
DETERMINATION
Va. Code §58.1-610(D) provides in pertinent part that "[a]ny person selling fences...shall be deemed to be a retailer...whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items." Virginia Regulation (VR) 630-10-27(B) provides that "[a]ny person who sells tangible personal property at retail and installs such property as part of or incidental to the sale is a retailer and is required to add the sales tax to the sales price. The tax does not apply to installation charges when separately stated on a sales invoice. If the installation charge is not separately stated, the tax must be computed on the total charge." The above regulation clearly sets forth the requirement that the installation charge must be separately stated in order to qualify such charge for exemption from the tax. Thus, when the Taxpayer does not denote such charges on its customer's invoice it is only partially complying with the regulatory requirement.
Regarding the prior notification from the department, the fact that the former president was separated from the corporation and any management responsibilities effective April 30, 1991 does not qualify the Taxpayer for first generation audit status. According to the separation agreement presented, a previous partner assumed total control of the management of the corporation on the above date. This change occurred while the corporation maintained operations and did not affect the continuity of the business. As such, the audit of a business which has experienced a change in responsible parties but continues to conduct business in the same manner and for the same purpose as during a prior audit is subject to a higher degree of sales and use tax compliance. Moreover, the change in responsible parties has no bearing in this case given that the change occurred subsequent to the audit period under discussion.
Accordingly, there is no basis to deem this a "first" audit of the Taxpayer for purposes of the contested issue and penalty waiver. Further, the Taxpayer is advised that future audits will be conducted using the information taken from the front of the customer's invoice, and tax will be assessed on the full amount of those invoices for which the installation charge is not separately stated. I have enclosed copies of the applicable statutes and regulation for your information.
Based on the foregoing, I find no basis to adjust my previous determination and therefore the assessment is due and payable in full.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5298J
Rulings of the Tax Commissioner