Tax Type
Retail Sales and Use Tax
Description
Engineering contractor; Government contract
Topic
Exemptions
Property Subject to Tax
Date Issued
08-27-1993
August 27, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your letter of June 14, 1993 in which you seek correction of a retail sales and use tax assessment for************(the "Taxpayer").
FACTS
The Taxpayer, an engineering contractor, entered into contracts with the U.S. Government to provide engineering and alteration services. An audit for the period January 1989 through December 1992 produced an assessment for the Taxpayer's failure to remit use tax on items purchased in the fulfillment of its contracts.
The Taxpayer protests the assessment of tax on materials purchased under the contracts, contending it qualifies for the exemption under Va. Code §58.1-609.1(4) (formerly Va. Code §58.1608(A)(1)(e)), as it acted as agent for the U.S. Government to procure supplies and equipment.
DETERMINATION
Va. Code §58.1-609.1(4) provides an exemption from the sales and use tax for tangible personal property for use or consumption by the United States. Virginia Regulation (VR) 630-10-27(J) makes clear that this exemption is available only when "the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental entity.
In addition, VR 630-10-45.E. provides:
-
- 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 the exemption on the grounds that a governmental 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.
- 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 the exemption on the grounds that a governmental 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.
There is no evidence that the Taxpayer was designated the purchasing agent for the U.S. Government; the contracts provided make no reference to such a relationship. In addition, you state that once an order for materials was placed, the government was obligated to reimburse the Taxpayer for the cost of procurement. In such an instance, the government's credit is not bound directly to vendors for the payment on purchases made by the Taxpayer under the contract. Consequently, the Taxpayer is subject to the use tax on materials it consumed in the performance of its contracts with the government.
Furthermore, a review of the contracts provided reveals that the contracts are for the provision of services to the government, i.e., engineering and alteration services. Contracts "D" and "F" state that the scope of work is to "provide engineering and technical support services..." In both cases, these services are to support the installation of certain equipment, which is provided by another party. The objective of Contract "J" is to "provide technical and maintenance training support services" relating to the installation of certain equipment provided by another party. Contract "V" requires the Taxpayer to "develop and implement projects intended to facilitate the development, utilization, and transfer of technology." It is clear from the language of the contracts and the scope of the work thereunder that the Taxpayer was engaged to provide services to the U.S. Government. While the Taxpayer was required to furnish certain tangible personal property in connection with the contracts, the overall purpose of the contracts was to render engineering services to the federal government. In accordance with VR 630-10-45.E., the Taxpayer is the user or consumer of all items purchased in providing such service and must either pay the tax to its suppliers at the time of purchase or remit the use tax directly to the department based on the cost of such items.
Accordingly, the assessment is correct as made and is now due and payable. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/7078F
Rulings of the Tax Commissioner