Tax Type
Retail Sales and Use Tax
Description
Government contractor; Computer engineering services
Topic
Property Subject to Tax
Date Issued
12-28-1992
December 28, 1992
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear****************
This will reply to your letter of April 23, 1992 in which you seek correction of an assessment to *******************(the "Taxpayer") for the period January 1989 through December 1992.
FACTS
The Taxpayer, a government contractor specializing in computer engineering and software design, maintains that items picked up in the assessment were charged directly to cost reimbursable federal contracts and thus were exempt from the tax. While the auditor was not allowed to review the confidential federal contracts, based upon information supplied by the Taxpayer, he held the items taxable as being used by the Taxpayer in providing services to the federal government.
DETERMINATION
The department's policy on the taxability of items provided in connection with various types of federal government contracts is summarized in P.D. 88-159 (6/23/88) and Virginia Regulations (VR) 630-10-45 and 630-10-27, copies enclosed. The department's policy has also been upheld in the federal courts in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd. 569 F.2d 811 (4th Cur, 1978).
You should further note that the courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and that the burden of evidence is upon the taxpayer to prove otherwise.
In the instant case, the contract in question, as well as the request for procurement (RFP) are confidential and thus were not available for review by department personnel. Accordingly, the Taxpayer has provided no information substantiating its claim that the items purchased were for resale to the federal government. While a member of my Tax Policy staff spoke with the contracting officer, the limited information he provided supported the auditor's findings that the tangible personal property in question was used in a taxable manner (the rendition of a contract to provide services to the federal government as opposed to a contract for the sale of tangible personal property). The contracting officer did indicate that the federal agency with which you were contracting will not take a position on the issue pending the resolution of litigation in Connecticut.
Accordingly, I find no basis for revising the assessment. A revised Notice of Assessment with accrued interest will be mailed to the Taxpayer shortly and should be paid within 30 days to avoid the accrual of additional interest. If the Taxpayer would like to preserve its right to a refund pending resolution of the Connecticut case, it should pay the assessment in full and submit a protective claim for refund pursuant to Va. Code §58.1-1824 (copy enclosed). Upon resolution of the Connecticut litigation, the department will review the opinion in light of existing federal and Virginia caselaw and issue a determination on the protective claim.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6140H
Rulings of the Tax Commissioner