Tax Type
Retail Sales and Use Tax
Description
Construction; Cabinet Manufacturer
Topic
Taxability of Persons and Transactions
Date Issued
05-27-1992
May 27, 1992
Dear***********:
This will reply to your letter of July 16, 1991 in which you seek correction of sales and use tax assesed to * * * (the "Taxpayer'), for the period April, 1988 through March, 1991.
FACTS
The Taxpayer primarily manufactures cabinets for resale on a noninstallation basis. The Taxpayer protests the application of tax to purchases of materials used and consumed in the performance of a contract involving the provision of cabinets to a nonprofit hospital who provided the Taxpayer with certificates of exemption for the project. It is the Taxpayer's belief that it is an exempt manufacturer rather than a fabricating contractor and that the contract is exempt of the tax based on the order party being a nonprofit hospital.
DETERMINATION
Virginia Regulation (VR) 630-10-27, copy enclosed, defines a contractor as "any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon . . .' Furthermore, VR 630-10-27(B) provides that "[a] person who is a using or consuming contractor . . . engaged in the business of selling tangible personal property to customers . . . is a dealer with respect to such sales.' The section goes on to provide that a contractor may purchase the tangible personal property under a resale exemption certificate. However, "[h]e may not purchase under a resale exemption certificate any tangible personal property which he knows at the time of purchase will be furnished by him in connection with any specific contract.' Therefore, any raw materials for fabrication of the cabinets that are purchased for a specific real estate construction contract are taxable only on their cost price.
Additionally, (VR) 630-10-27(A), states that "[n]o sale to a contractor is exempt on the ground that the other party to the contract is a governmental agency, a public service corporation, a nonprofit school, or nonprofit hospital, or on the ground that the contract is a cost-plus contract.' Emphasis added. The fact that the nonprofit hospital for which the work was performed provided the Taxpayer with certificates of exemption for the project has no bearing. Va. Code § 58.1-623, copy enclosed, provides that exemption certificates are to be provided by the purchaser of tangible personal property to the seller of the property. In this case, the Taxpayer was not selling the property to the hospital, but was furnishing the property under a contract respecting real estate. As such, the exemption afforded the hospital does not flow through to the Taxpayer who is the taxable end user or consumer of the property.
Accordingly, the auditor will make the necessary adjustments to the audit findings to reflect the computation of tax based on the cost price of tangible personal property used in the performance of real property installation contracts. Subsequently, you will receive a revised Notice of Assessment which should be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner