Tax Type
Retail Sales and Use Tax
Description
Business communication systems
Topic
Collection of Tax
Property Subject to Tax
Date Issued
03-29-1993
March 29, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear**************
This will follow up with the department's letter of December 18, 1991 to you in which indicated that we issue a determination on the proper application of the tax to your company's (the Taxpayer's) business upon completion of the audit. The audit has been completed and now you contest the tax assessed on nonseparately stated labor charges.
FACTS
The Taxpayer sells and installs various types of business communication systems. It primarily sells and installs ethernet and fiber optic cabling but, on a limited basis, sells telephone and computer systems and, cable both on an installed and uninstalled basis.
The Taxpayer has been treating itself as a retailer with respect to all of the systems and cabling which it sells whether on an installed or uninstalled basis. It was audited as a retailer - the way it had been treating itself.
DETERMINATION
From the information provided, it appears that the Taxpayer is operating in a dual capacity as a contractor and a retailer. I will address the appropriate tax treatment of each of the transactions within which the Taxpayer engages separately below:
Sales and installation of telephone and computer systems
The department has previously ruled in P.D. 91-50 (3/27/91) that a taxpayer engaged in the sale and installation of telecommunications equipment is required to collect and remit the tax on the total charge for the sale of the system, yet separately stated installation charges are nontaxable. (See Virginia Regulation (VR) 630-10-102.2, copy enclosed) The same rule applies to sales or leases of computer systems.
Sales of computer cabling
The Taxpayer makes limited retail sales of computer cabling but generally makes sales of such on an installed basis. The department ruled in P.D. 90-210 (11/28/90) that the installation of computer cabling is deemed to be a service with respect to real estate and thus the taxpayer installing such is deemed to be a contractor, rather than a retailer, with respect to this service. Accordingly, as a contractor, the Taxpayer is the user and consumer of all tangible personal property furnished to or by it in connection with the installation of the cabling.
VR 630-10-27 B provides that a person who is a using or consuming contractor, who is also a dealer/retailer with respect to certain tangible personal property, may purchase such tangible personal property under a resale exemption certificate. It provides further that:
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- he may not purchase under a resale exemption certificate any tangible personal property which he knows at the time of purchase will be furnished by him in connection with any specific contract. If such a person, as a using and consuming contractor, removes from his sales inventory for use in the performance of any contract any tangible personal property purchased under a resale certificate, he must include the cost to him of such tangible personal property on his dealer's return and pay the tax.
- he may not purchase under a resale exemption certificate any tangible personal property which he knows at the time of purchase will be furnished by him in connection with any specific contract. If such a person, as a using and consuming contractor, removes from his sales inventory for use in the performance of any contract any tangible personal property purchased under a resale certificate, he must include the cost to him of such tangible personal property on his dealer's return and pay the tax.
Whether acting in the contractor or retailer capacity, the Taxpayer is deemed to be the user or consumer of all supplies used in installing tangible personal property, i.e., equipment and tools, wiring and other similar items and accordingly is subject to the tax on all such supplies purchased.
Audit Assessment
You seek waiver of the tax assessed on the labor portion of the Taxpayer's invoices. You maintain that copies of proposals, contracts and customer purchase orders indicate a break out of labor and material charges, yet the invoices do not. The auditor held taxable both labor and materials since they were not separately stated. Credit, however, was given for the tax that was charged and collected by the Taxpayer.
Since this was the first audit of the Taxpayer and based on the information provided, I will agree to remove from the assessment the tax assessed on installation charges for which the Taxpayer can provide proposals, contracts and/or customer purchase orders which illustrate separately stated installation charges. However, in the future, with telecommunications, computer and similar type systems, in order for installation charges to be exempt from the tax they must be separately stated on customer invoices. With cabling contracts, since the Taxpayer is deemed to be the user and consumer of the cabling, it should pay the tax on the cabling and take the amount of the tax into consideration in submitting bids.
The above requested documentation should be submitted directly to the auditor who performed the audit within 30 days. If the necessary information is not received within the allotted time, the assessment will become due and payable immediately.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6171H
Rulings of the Tax Commissioner