Tax Type
Retail Sales and Use Tax
Description
Government contractor; Materials used in providing service contract
Topic
Property Subject to Tax
Date Issued
04-15-1994
April 15, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your request for redetermination of a sales and use tax liability for*********(the "Taxpayer") for the period January 1989 through December 1992.
FACTS
The Taxpayer, an engineering contractor, entered into contracts with the U.S. Government to provide engineering and alteration services. An audit produced an assessment for the Taxpayer's failure to remit use tax on items purchased in the fulfillment of its contracts.
The Taxpayer protests the assessment of tax on materials purchased under the contracts, contending it qualifies for the exemption under Va. Code §58.1-609.1(4), as it acted as agent for the U.S. Government to procure supplies and equipment.
In a previous ruling, it was determined that the Taxpayer was not a purchasing agent for the U.S. Government. In addition, it was found that the contracts at issue were for the provision of services, and the Taxpayer was the user or consumer of all items purchased in providing such service. Therefore, the resale exemption was not available and the Taxpayer was liable for the tax on its purchases.
You request reconsideration of the prior ruling and have met with members of my staff and submitted additional information to support the Taxpayer's position.
DETERMINATION
After reviewing the audit report and the information provided, I find no reason to change the department's position. As outlined in the department's previous response, the application of the law and regulations to the Taxpayer's situation is clear.
The additional information provided consists primarily of pictures of the types of property required to be furnished under the Taxpayer's contracts with the federal government. However, it is the language of the contract and scope of work under the contract which determines if the contract is for services or for tangible personal property. In this case, it is clear from the language of the contracts and the scope of the work thereunder that the overall purpose of the contracts was to render engineering services. The fact that the Taxpayer was required to furnish tangible personal property in connection with the contracts does not alter this determination.
Virginia Regulation (VR) 630-10-45.E. provides that the taxpayer is the user or consumer of all items purchased in providing a service. This is true even though title to the property provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government. The taxpayer must either pay the tax to its suppliers at the time of purchase or remit the use tax directly to the department based on the cost of such items.
Accordingly, the assessment is correct as made. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7818F
Rulings of the Tax Commissioner