Tax Type
Retail Sales and Use Tax
Description
Scales
Topic
Property Subject to Tax
Date Issued
05-13-1994
May 13, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear*********
This will reply to your letter of January 11, 1994 in which you seek a ruling on the application of the tax to sales made by********("the Taxpayer").
FACTS
The Taxpayer sells, installs and services scales and other weighing equipment which are used in all types of industries for receiving raw materials, product production, inventory control, and finished goods shipping.
The types of products sold vary widely in size and design and also in installation. The installation may involve simply placing the scale on a bench or the floor, but may also entail installing a unit with anchor bolts. Some units, such as truck scales, may be installed in a pit which has been cut into the ground and secured with concrete poured around the pit frame.
In all instances the Taxpayer has treated itself as a retailer and charged the tax on the sales price of its scales unless the customer provided an exemption certificate. However, the Taxpayer was recently advised that in some cases it may be selling and installing tangible personal property that becomes real property upon installation and was further advised to seek a ruling on this question.
DETERMINATION
Virginia Regulation (VR) 630-10-27 indicates that "a person selling and installing tangible personal property that becomes real property after installation is generally considered a contractor...." The regulation also provides that:
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- A contractor is defined as any person who contracts to perform construction, reconstruction installation, repair or any other service with respect to real estate or fixtures thereon ... and in connection therewith to furnish tangible personal property.... Unless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.
In determining whether a particular commodity remains tangible personal property or becomes a part of realty upon installation, the Virginia Supreme Court has ruled that:
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- 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 to be considered...." Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970).
Based on these guidelines, I will address the application of the tax to the Taxpayer's exhibited products as follows:
Exhibit A: The counting scales, bench scales and floor scales shown in this exhibit remain tangible personal property. The Taxpayer is required to collect the tax on the sale of these items unless he takes a certificate of exemption from the customer.
Exhibit B: The bin, tank and hopper scales remain tangible personal property upon installation.
The low profile floor scales also appear to remain tangible property in most instances. Even if the unit and access ramps need to be bolted to the floor, it is evident that the total design of the product and its installation facilitate portability. However, pit installation of this product may alter it to real property as discussed below.
Exhibit C: The pit-type truck scales (Exhibits C-1 and C-2) are installed in reinforced concrete pits and covered with a concrete deck. In these instances the scales become real property upon installation since it is likely that the intent with this type of installation is to permanently maintain the scale in the place provided.
The unit shown in Exhibit C-3 remains tangible personal property when placed directly on the floor since this type of installation promotes relocation. When permanently installed in a concrete pit, however, this unit becomes real property upon installation.
Exhibit D: It appears that each of the above ground truck scales may be placed for either temporary or permanent installation depending on model design, accessories and type of approaches. When set on concrete piers and simply bolted into place, with no poured approaches, the unit is deemed to remain tangible personal property. In those installations requiring poured concrete approaches, or other permanent installations, the scales are deemed realty upon installation.
In conclusion, the Taxpayer is considered to be a contractor as defined in VR 630-10-27 when it sells and installs scales which become real property upon installation. In such cases the Taxpayer is deemed to be the user and consumer of scales and other items which become part of realty and must accrue the tax on the cost price of the scales and other items.
Furthermore, this tax is not passed on to the customers as a tax, but should be incorporated in the Taxpayer's bid as a cost of doing business. Therefore, when operating as a contractor, the Taxpayer may not accept any certificates of exemption relieving it of its responsibility to pay the tax on the cost price of scales which become part of realty.
Also, the application of the tax to the sale of repair parts would follow the same guidelines as discussed above. Thus, the Taxpayer must charge the tax as a retailer on the sales price of repair parts used to repair scales which are tangible personal property. Conversely, when selling and installing repair parts on realty, the Taxpayer must pay the tax on the cost price of the parts.
I trust that this information answers your concerns, but please contact the department if you require additional information.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7628I
Rulings of the Tax Commissioner