93-99 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Construction; Wind tunnel modifications

Topic

Taxability of Persons and Transactions

Date Issued

04-12-1993

April 12, 1993

Re: Request for Ruling: Retail Sales & Use Tax

Dear******************

This will respond to your letter of December 31, 1991 in which you seek a ruling on the appropriate tax treatment of tangible personal property used in making modifications to wind tunnel facilities.

FACTS

The Taxpayer is a contractor whose business primarily revolves around modifications to wind tunnels. Wind tunnel facilities are used in aeronautical research and development and are reconfigured frequently to address various research requirements. You maintain that the characteristic of continuous change to these facilities and the fact that they are instruments of research distinguishes them from real property and requires that they be considered tangible personal property.

RULING

Virginia law generally treats contractors with respect to real estate as the user or consumer of all tangible personal property used in the performance of a contract and thus requires that they pay the sales or use tax on all such materials.

In the instant case, the Taxpayer is deemed to be the user and consumer of construction and other materials which become a part of the building comprising the shell of the wind tunnel facility.

However, in determining the proper tax treatment of the equipment used in the wind tunnel facilities, it must be determined whether the equipment remains tangible personal property or becomes a part of the real estate. The Virginia Supreme Court in Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970), ruled that:

- Three general tests are applied in order to determine whether an item of personal property placed upon realty becomes itself realty. They are: (1) annexation of the property to the realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties. The intention of the party making the annexation is the chief test.

From the information provided, it appears that equipment which may be replaced in modifying the facilities, such as airflow components, model handling systems and process piping, affixed to the realty, are not intended to be permanent and thus remain tangible personal property. Accordingly, the Taxpayer would be deemed to be a retailer with respect to such items and may purchase them exempt from the tax under a resale exemption certificate. The Taxpayer is required to collect the tax on sales of the components, systems, etc., unless the purchaser is otherwise exempt from the tax.

If you have any further questions regarding this matter, please contact the department.

Sincerely.

W. H. Forst
Tax Commissioner

OTP/5848H

Rulings of the Tax Commissioner