Tax Type
Retail Sales and Use Tax
Description
Government transactions; Real estate construction contract
Topic
Taxability of Persons and Transactions
Date Issued
02-05-1993
February 5, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear********:
This is to respond to the letter from * * * requesting a re-evaluation of the department's position concerning the determination rendered in P.D. 88-67 (4/4/88) in which purchases by * * * (the Taxpayer), on behalf of the * * * (the Authority), were held taxable as sales of tangible personal property used and consumed in the performance of a real property construction contract. The liability was assessed to the Taxpayer as the result of a department audit for the period July, 1984 through December, 1986.
Va. Code §58.1-608(A)(1)(e) provides an exemption from the sales and use tax for "[[t]angible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States.' This code section is interpreted in Virginia (VR) 630-10-27(J), which provides in part that the tax applies to purchases of tangible personal property for use and consumption by contractors in connection with real property construction. It provides further that "[o]nly in instances where the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental entity will such purchases be deemed exempt from the tax.'
(Emphasis added)
It was determined by the department that despite the designation of the Taxpayer as purchasing agent, the documentation presented was insufficient to certify that the Taxpayer was contractually granted the authority to bind the credit of the Authority (a government entity) and as such, failed to meet the other test required for exemption.
However, upon review of additional documents submitted by the Authority, I must conclude that the parties intended to create an agency relationship as demonstrated by the Authority's affidavit. Therefore, the Taxpayer's purchasing agreements with various vendors on behalf of the Authority would bind the credit of the Authority in such a manner as to render such transactions sales to a government entity and thus, exempt under Va. Code §58.1-608(A)(1)(e).
As a result, I find basis to reverse the decision set forth in P.D. 88-67 (4/4/88). Please be advised that this determination is based on the facts and documents regarding the specific contractual agreement presented in this case.
Accordingly, the Taxpayer will receive a refund of the contested amount of the audit assessment, with interest accrued through the date of this letter, under separate cover. If you have additional questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner