Tax Type
Retail Sales and Use Tax
Description
Government contractor; Purchases
Topic
Property Subject to Tax
Date Issued
05-20-1994
May 20, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear********
This is in response to your letter regarding the application of the sales and use tax on tangible personal property purchased by ********* (the "Taxpayer") pursuant to a federal government contract.
FACTS
As a prime contractor, the Taxpayer provides professional engineering services and training to an agency of the federal government. Pursuant to a contract modification, the Taxpayer is also required to provide hand-held training devices. The Taxpayer provides these devices on a cost-reimbursable basis and holds them in storage in Virginia until shipment to various agency sites. You indicate that these devices are not purchased to perform any services required by the contract. You further indicate that the Taxpayer does not take ownership of the devices and does not expense or capitalize them in accounting records.
The Taxpayer has been paying the tax on all tangible personal property which it uses to perform its contractual services but suggests that the hand-held devices may be purchased exempt of the tax for resale to the federal government in accordance with a ruling from the department of November 29, 1985.
DETERMINATION
In Public Document 89-154 (4/28/89), the department determined that tangible personal property purchased by a contractor pursuant to a service contract with a federal agency was a purchase for the contractor's own use or consumption and not for resale to the federal government. The instant case is clearly analogous, and based on that determination I can find no grounds which would allow the Taxpayer to purchase the hand-held devices under the resale exemption.
Nor is this determination inconsistent with the examples cited by the Taxpayer from the department's ruling of November 29, 1985. Examples 3 and 4 of that ruling concern contracts which call for the sale of tangible personal property since the conversion, modernization and repair of vessels involve the sale of tangible parts comparable to transactions governed by Virginia Regulation (VR) 630-10-90. Similarly, Example 5 addresses an agreement calling for the sale of parts under a parts and labor maintenance contract. As indicated in VR 630-10-62.1(D), such maintenance agreements represent the sale of tangible personal property.
Furthermore, the Taxpayer's claim that the devices are not put in use while in the Commonwealth is contrary to the sales and use tax laws. Va. Code §58.1-604 imposes the tax on the use or consumption of tangible personal property in Virginia. "Use tax" is defined in §58.1-602 to specifically include storage which is defined to mean "any keeping or retention of tangible personal property for use, consumption or distribution in this Commonwealth, or for any purpose other than sale at retail in the regular course of business." (emphasis added).
Therefore, any holding of tangible personal property within the Commonwealth, other than for resale, is deemed a taxable use of that property.
I hope that this information clarifies the department's position, and a number of rulings and other documents which further address this issue will be sent to you shortly under separate cover.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
Rulings of the Tax Commissioner