Tax Type
Retail Sales and Use Tax
Description
Sales and installation of floor coverings; Retailer vs. consuming contractor
Topic
Collection of Tax
Exemptions
Property Subject to Tax
Date Issued
04-14-1992
April 14, 1992
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter of December 9, 1991 in which you submit an application for correction for an assessment to your client, * * * * * (the "Taxpayer"), for the period December 1, 1987 through November 30, 1990.
FACTS
The Taxpayer is engaged in the business of selling and installing floor coverings which may remain tangible personal property or become a part of the realty upon installation. It contests the tax assessed on floor coverings permanently installed for tax exempt organizations. The Taxpayer maintains that it is a retailer with respect to its sales and that its application of the tax has been consistent with that in 1987 when it was first audited by the department. It disagrees that it is a contractor with respect to sales of floor coverings which are permanently attached and thus must remit the use tax on such.
DETERMINATION
Virginia Regulation (VR) 630-10-27, copy enclosed, provides that:
- a person selling and installing tangible personal property that becomes real property after installation is generally considered a contractor, except that a retailer selling and installing fences, venetian blinds, . . . storm windows and doors, floor coverings (as distinguished from floors themselves), cabinets, . . . is not classified as a using or consuming contractor with respect to them.
It defines floor coverings as "rugs, mats, padding, wall-to-wall carpet when installed by the tack strip or stretch-in methods, and other floor coverings which are not glued, cemented, or otherwise permanently attached to the floor below." It further specifies that "persons selling an installing floor coverings which become permanently attached to floors are deemed to be using or consuming contractors with respect to such items."
Based upon a review of the information provided, the Taxpayer is engaged in both the installation of flooring which remains tangible personal property and which becomes permanently attached to the flooring (to use your terminology, the Taxpayer is "wearing two hats depending upon the method of installation"). Accordingly, it was properly held subject to the tax on its purchases of flooring used in real property installations for exempt organizations.
With regard to your contention about operating consistently with the first audit findings, I have found that in the first audit, while the auditor conducted the audit in a manner consistent with the way the Taxpayer had been operating (treating all sales as retail sales) this in no way should have been interpreted that the department condoned the Taxpayer's tax treatment of its sales. The treatment of the Taxpayer's first audit was not inconsistent or unusual in first audit situations in which the department has found that a taxpayer engaging in the dual capacity of a seller and contractor of floor covering has improperly applied the tax, provided there are no indications of fraud or other deceitful activity. In such instances, the auditor then advises the taxpayer of the proper application of the tax. Compliance with the regulations and law is then expected of the taxpayer in the future.
It is my understanding that in the instant case, the auditor did inform the Taxpayer, both orally and in writing, of the proper application of the tax. Thus, I can find no basis for revising the assessment.
Accordingly, the assessment is correct and due and payable. You will shortly receive a bill with interest accrued to date which should be paid within 30 days to avoid the accrual of additional interest.
For your information, I have enclosed a copy of P.D. 89-252 (9/21/89) which addresses the taxability of new kinds of installations about which you requested a ruling in your letter of January 20, 1991 to the department's Office Services Division, Technical Services Section.
If you have any questions about this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner