Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Contractor for nonprofit hospital
Topic
Taxability of Persons and Transactions
Date Issued
06-28-1994
June 28, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear*********
This will reply to your letter of June 28, 1993 in which you seek information regarding the application of the sales and use tax to your client, the Company, and its plans to construct a facility in Virginia for a nonprofit hospital, the Hospital.
FACTS
The Company is a real property contractor which is considering the building of a facility in Virginia for the Hospital, a privately owned nonprofit organization. The Company would function as the general contractor, engaging the services of subcontractors in connection with the performance of the contract and all materials would be delivered to the job site.
The Company is a real property contractor which is considering the building of a facility in Virginia for the Hospital, a privately owned nonprofit organization. The Company would function as the general contractor, engaging the services of subcontractors in connection with the performance of the contract and all materials would be delivered to the job site.
Your inquiry focuses on the sales tax treatment of the Company in light of the Hospital's qualification for exemption under Va. Code § 58.1-609.7(4). Specifically, you contend that the Company would not be subject to the tax if the contract stipulates the following:
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- The Company is designated as the Hospital's purchasing agent;
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- The Company is entrusted with signatory power over Hospital funds deposited in a separate bank account in the Hospital's name; and
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- The Hospital issues purchase orders directly to the vendor in its name.
Based on the above conditions, you seek confirmation of the Company's exempt treatment in the performance of its contract with the Hospital.
RULING
Va. Code §58.1-610 and Virginia Regulation (VR) 630-10-27 provide the basic rules and application of the tax to contractors engaged in real property construction. Generally a contractor is considered to be the user and consumer of all tangible personal property incorporated into real property construction, regardless that the contractor purchases the property or the property is furnished to the contractor by the customer. As the consumer, all contractors must pay the use tax on such purchases.
Similarly, the statute and regulation provide that tangible personal property purchased tax free does not retain its exempt status in the hands of a contractor. The only exception to this rule is when the property is furnished to a contractor by a governmental unit or agency. a manufacturer, processor miner, public service corporation. commercial radio, television or cable television operation. farmer. or shipbuilding and repair business.
Va. Code § 58.1-609.7(4) extends a sales tax exemption to purchases of tangible personal property used or consumed by a nonprofit hospital. The conferral of agency status from the Hospital to the Company would enable the Company to purchase tangible personal property tax free; however it would not immunize the Company from the tax in its capacity as a contractor which is furnished property previously purchased tax free. This is supported by P.D. 84-107 (7/18/84). The ruling dealt with the agency relationship established between a home for adults and a real property contractor. While the home for adults (exempt by statute and subject to state licensure) was entitled to make exempt purchases of tangible personal property, the fact that such a relationship existed was insufficient to extend exemption to the contractor. As such, the economic consequence of the transaction would be the same whether or not the Company is designated as the purchasing agent of the Hospital.
Furthermore, should the Company pursue the contract, it will also be responsible for the remittance of the employee withholding tax for all employees hired for the project and performing services in Virginia.
I am enclosing copies of the cited statutes, regulation and Commissioner's ruling. I hope the foregoing has responded to your inquiry; however if you have additional questions, please do not hesitate to call*********** in the Office of Tax Policy at**************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7114J
Rulings of the Tax Commissioner