Tax Type
Retail Sales and Use Tax
Description
Government transactions; County law library
Topic
Taxability of Persons and Transactions
Date Issued
07-28-1993
July 28, 1993
Re: §58.1-1821 Application: Sales and Use Tax
Dear*************
This will reply to your letter in which you request the correction of an assessment of sales and use tax upon the**********(the "Association") for certain purchases it made on behalf of the ******* (the "County").
FACTS
The County has established a law library (the "Library") for the purpose of acquiring and maintaining law books, legal periodicals, and computerized legal research services and equipment for use by people working and residing in the community. Pursuant to an agreement between the Association and the County (the "Agreement"), the Association has agreed to act as the County's agent to administer and manage the Library operations.
The Association's duties include the purchasing of books and other supplies. All purchases made on behalf of the Library are made in the Library's name. The purchases are paid for with funds the County derives from its collection of a special writ tax. The County has supplemented the Agreement with a declaration signed by the County Executive (the "Declaration") which attested to the fact that the County is responsible for the payment of all Library purchases.
DETERMINATION
Va Code §58.1-608(A)(1)(e) provides an exemption from the sales and use tax for the use or consumption of tangible personal property by a political subdivision of the Commonwealth. Purchases made on behalf of a governmental entity will likewise be exempt from the imposition of tax if the party making the purchase on behalf of such entity is actually the agent for the entity. See PD.93-21, (February 5, 1993), see also P.D. 93-21, (February 5, 1993).
In addition to the existence of an agency agreement, in order for the agent to be entitled to claim the benefit of the governmental exemption, purchase agreements with sellers must bind the credit of the government. U.S. v. Forst 442 F. Supp. 920 (W.D. Va., 1977), aff'd, 569 F.2d 811 (4th Cir., 1978). This requires an investigation beyond the language of the agency agreement to determine whether the course of business has been in accordance with the expressed terms of such agreement. Forst.
In Forst, the Court looked to the contractor's purchase orders, which were solely in the name of the contractor, and determined that the credit of the government was not bound. Therefore, the contractor was not entitled to claim the benefit of the governmental exemption despite the fact that the contractor never had legal title to the items purchased and that it was reimbursed by the government for the costs of the purchases.
The County is a political subdivision of the Commonwealth. Further, the Library, which was established pursuant to a County ordinance and which is funded by County funds, is an operating subdivision of the County.
Pursuant to the terms of the Agreement and the Declaration, the Association is the agent of the County for purposes of purchasing books, legal periodicals, and other materials for the Library. Additionally, all of the purchases the Association makes in its agency capacity with the County are in the name of the Library.
Since the Association's purchases of material for the Library are in the name of the Library, which evidences that fact that the sellers are aware the purchases are being made on behalf of the County, thus obligating the County, the purchases are exempt from taxation pursuant to the governmental exemption. The portion of the assessment related to the Association's purchases on behalf of the Library will be abated.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6193O
Rulings of the Tax Commissioner