Tax Type
Retail Sales and Use Tax
Description
Purchases made under federal contract
Topic
Taxability of Persons and Transactions
Date Issued
09-21-1994
September 21, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will respond to your letter seeking a ruling on the tax status of purchases made by **** (the "Taxpayer") in connection with a contract with the federal government. You maintain that the contract primarily is for the provision of technical support at a federal installation in Virginia. The Taxpayer, however, purchases some tangible personal property that is used in the performance of the contract and for which title passes to the federal government. The federal government is billed directly for the tangible personal property by the Taxpayer
RULING
In determining the tax status of government contracts, the department considers the entire contract, including any addenda, task directives or work orders issued with or separate from the original contract, as one transaction, which is either taxable or exempt. The "true object" test described in Virginia Regulation (VR) 630-10-97.1 is then used to determine whether the contract is for the sale of tangible personal property or for the provision of some service.
As explained in P.D. 88-159 (6/22/88), copy enclosed, if a contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its services, even though title to some or all of the property may pass to the government. However, if a contract is for the sale of the property, the contractor may purchase articles the title to which will pass to the government under resale certificates of exemption. The subsequent sale of such items to the government are exempt from the tax pursuant to Va. Code § 58.1-609.1(4).
Based upon the very limited information provided, it appears that the Taxpayer's contract is for the provision of services. However, without actually reviewing the contract, a statement of work, or similar documentation relating to the contract, the department cannot issue a definitive ruling on the contract.
For your review and information, I am enclosing other determination letters, P.D. 92-194 (9/29/92) and P.D. 94-218 (7/13/94) explaining the department's policy with respect to government contracts. Should you desire any additional information, please do not hesitate to contact me.
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner