Tax Type
Retail Sales and Use Tax
Description
Government contractor; Service contract
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
08-09-1993
August 9, 1993
Re: Request for Ruling: Retail Sales and Use Tax
Dear******************
This will reply to your letter of February 25, 1993 regarding the application of the sales and use tax to an unidentified client (the Taxpayer).
FACTS
The Taxpayer, a Virginia corporation, has entered into a contract with the federal government to operate, monitor, overhaul, maintain and repair government-owned gas compressor and pumping station facilities located in Virginia. The Taxpayer is also required under the terms of the contract to provide chemical analysis of certain water samples. In support of this work, the Taxpayer is to furnish all personnel, equipment and materials.
You request a ruling on the application of the sales and use tax to this government contract in light of the specific Code sections and regulations discussed below.
DETERMINATION
Va. Code §58.1-608(A)(1)(e) and Virginia Regulation (VR) 630-1045(A) exempt from the tax sales of tangible personal property to the federal government. However, in the instant case the Taxpayer has contracted to provide services. As such, the contract is governed by (VR) 630-10-45(E) which provides that:
-
- Persons who contract with the federal government ... to perform a service and in conjunction therewith furnish some tangible personal property are deemed to be the consumers of all such property and are not entitled to exemption on the grounds that a government entity is a party to the contract. This is true even though title to the property provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government.
The application of the tax to government service contracts has been addressed by the department in a number of prior rulings, examples of which are enclosed.
In regard to other potential exemptions noted in your correspondence, I cannot agree that this case represents a labor - only maintenance contract as envisioned in VR 630-10-62.1. The contract in this case specifies that the Taxpayer is responsible for a wide range of services involving the complete operation of the government facilities with maintenance being only one subfunction to that entire operation. I would point out, however, that the application of the tax to government service contracts and labor-only maintenance contracts is the same in that both transactions require the payment of tax on purchases of tangible personal property used to provide services, and in both transactions no tax is charged on the sale of those services.
Further, it is not likely that the Taxpayer is entitled to the industrial manufacturing exemption set out in Va. Code §58.1608(A)(3)(b) in that this exemption is limited to machinery and tools used predominantly in manufacturing or processing products for sale or resale. In this instance the Taxpayer is providing support services at a government facility which furnishes gasses predominantly for the government's own use.
I trust that this information has answered your concerns, but please contact the department if You have additional questions.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6787I
Rulings of the Tax Commissioner