Tax Type
Retail Sales and Use Tax
Description
Construction; Primary purpose test for contractors
Topic
Taxability of Persons and Transactions
Date Issued
03-29-1993
March 29, 1993
Re: Ruling Letter: Retail Sales and Use Tax
Dear*****************
This will reply to your letter of June 8, 1992 in which you seek further explanation of the ruling indicated in Public Document 89117 (April 10, 1989) on behalf of *************(the "Taxpayer").
FACTS
The Taxpayer is a fabricator of steel products for use exclusively in real property construction contracts. The Taxpayer cuts, drills, and bends raw steel beams and plates to the contractor's specifications and drawings. The Taxpayer fabricates such items both for its own use in real estate construction and for sale to other contractors.
In the department's previous letter, the primary purpose rule (50% test) was discussed as provided in Virginia Regulation (VR) 630-1027(D). The Taxpayer has requested a response to questions relative to this regulation.
RULING
I will address the questions presented in your letter in the sequence written.
1. Is the 50% test on an annual basis and is the test date the calendar year or our fiscal year? If not, what period is tested to determine the more than 50% computation?
The primary purpose test is computed annually either on a fiscal or calendar year basis provided that the same basis is used consistently from year to year by the Taxpayer.
2. Is the 50% test for sales in Virginia only or for sales of the entire company in all states?
The primary purpose rule should be applied in determining tax application. Gross receipts are used to determine whether contracting or retailing constitute the primary purpose of the dealer's business. The primary purpose rule is computed separately for each facility of a company located in or doing business in Virginia. For such facilities, the primary purpose rule will apply to gross receipts regardless of whether they are from Virginia or non-Virginia sources.
If further assistance in needed, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6221N
Rulings of the Tax Commissioner