Tax Type
Retail Sales and Use Tax
Description
Prefabricated house sections; Erection and set-up fees
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
04-07-1994
April 7, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear****************
This will reply to your letter of April 21, 1993, in which you submit an application for correction of a sales and use tax assessment issued to your business as the result of an audit.
FACTS
Your business is engaged in the construction of homes. One of your suppliers, an out-of-state manufacturer of prefabricated house sections is registered to collect the Virginia sales tax and has done so on its sales to your business; however, the manufacturer has only collected tax based on 60% of the sales price of the prefabricated sections. The manufacturer's schedule of charges also includes a $500 per unit erection and set-up fee.
As the result of a recent audit, your business was assessed tax on the previously untaxed portion of the sales price of the prefabricated house sections, as well as on the $500 per unit set-up fee.
DETERMINATION
It is well established under Virginia law (Virginia Code §58.1-610) and regulations (Virginia Regulation 630- 10-27) that contractors are the taxable users or consumers of all tangible personal property used or consumed in the construction or erection of homes, buildings, or other structures
It is equally well established that the sales and use tax is computed based upon the "sales price" of the tangible personal property sold or purchased. The term "sales price" is defined in Virginia Code §58.1-602 as:
-
- the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever. (Emphasis added)
Additionally, Virginia Regulation 630-10-84.1 (Prefabricated house sections) specifically provides that "[s]ales of prefabricated modular house sections or units by manufacturers and other vendors are sales of tangible personal property, and the tax applies to the sales price." In this particular case, the manufacturer only charged sales tax on 60% of the sales price of the goods, thus the department's auditor properly assessed use tax on the remaining 40%.
This leaves only the issue of the $500 per unit set-up fee. Virginia Code §58.1-609.5 (2) specifically exempts from the tax "[a]n amount separately charged for labor or services rendered in installing ... property sold." The fee in this case is intended to cover costs associated with helping the actual construction contractor place the prefabricated house sections on foundations, either by the manufacturer's own employees or by persons approved by the manufacturer. As such, I find the fee to represent a nontaxable installation charge. However, it is my understanding that the fees were removed from the audit by the auditor prior to the assessment.
As the audit assessment did not include the $500 per unit fee, there is no need for further adjustments. The assessment, with accrued interest through the date of your appeal, was**************If this amount is paid within the next 30 days, I will waive the interest that has accrued since the filing of your appeal. Your payment may be submitted to********Office of Tax Policy, Department of Taxation, P. O. Box 1880, Richmond, Virginia 23282-1880. If you have any questions on the assessment itself, you may contact********, the Audit Supervisor in our*********District Office, at**********.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/6988A
Rulings of the Tax Commissioner