Tax Type
Retail Sales and Use Tax
Description
Government transactions; Contractor's purchases
Topic
Taxability of Persons and Transactions
Date Issued
09-23-1993
September 23, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*******
This will reply to your letter in which you seek correction of a sales and use tax assessment issued to ********(the Taxpayer).
FACTS
The Taxpayer operates primarily as a government service contractor providing computer-related consulting and products. An audit for the period March 1988 through January 1991 resulted in an assessment to the Taxpayer for its failure to pay the tax on a number of purchases. The only unresolved issue concerns tangible personal property purchased under task directives issued by the federal government.
These contested purchases were made in accordance with three specific ongoing service contracts which are described as tasking - type contracts. In response to the broad language of the contracts, the government issues addenda, or task directives, which specify a particular job under the umbrella of the contract. The task directives also provide estimated expenditures for labor, travel and materials necessary to complete the task. Subsequently, the Taxpayer drafts a Major Job Order (MJO) which specifies how the tasks will be performed and identifies the equipment and material necessary to satisfy the task directive. Once approved or modified by the government, the material specified in the MJO is purchased.
Under this procedure, the government does not issue purchase orders. Monthly billing is made by the Taxpayer on a cost-plus basis which includes those materials consumed by the Taxpayer as well as those items delivered to the government.
The Taxpayer maintains that the contested computer hardware, software and related items delivered to the federal government could have been purchased exempt of the tax since such purchases were for resale. The Taxpayer further maintains that its status as a service provider does not negate the government's right to purchase tangible personal property from the Taxpayer.
DETERMINATION
The department's policy regarding the application of the tax to property purchased for delivery to the federal government under the auspices of a service contract is addressed in the enclosed Public Documents 89-154 (4/28/89) and 93-186 (8/19/93). The latter determination is especially instructive because the contested untaxed purchases in that case were made in accordance with a task directive not unlike those issued by the federal government in the instant case.
Furthermore, the Taxpayer, as in the cases cited above, purchased property under a service contract. Had the purchases been made under a separate sales contract, the resale exemption may very well apply. The task directives, however, are not separate contracts.
Therefore, I find that the contested equipment was properly held taxable in the audit. I will agree, however, to remove the penalty charges associated with that equipment as it appears that the types of contracts at issue have not been examined during prior audits.
Accordingly, the assessment will be revised in keeping with this determination, and with interest accrued to date. A revised assessment will be issued. The revised assessment must be paid within 30 days to prevent accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6095I
Rulings of the Tax Commissioner