Tax Type
Retail Sales and Use Tax
Description
"Auto-pay" of contract; Sales tax collected by vendors
Topic
Returns/Payments/Records
Date Issued
09-28-1994
September 28, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear**************
This is in regard to your correspondence and your recent meeting with the department's ********* District Office concerning the "auto-pay" system initiated by*************(the "Taxpayer").
FACTS
The Taxpayer builds homes and develops land for residential construction. In an effort to significantly reduce paperwork and to streamline procedures for paying bills, the Taxpayer and its vendors have initiated an "auto-pay" system. This system allows the Taxpayer to make payments without the issuance of hard copy invoices from vendors.
Under this system, the Taxpayer negotiates a price and terms of contract with vendors. Each contract for those vendors who furnish and deliver goods is separated into materials, labor and tax, and these separate charges are listed on a bid sheet which shows all possible charges for a particular phase of work. The Taxpayer's construction supervisor verifies that the contracted work has been completed on each house at which point the vendor is paid on a weekly basis with no separate invoicing of completed work.
The Taxpayer seeks the department's opinion in using the "auto-pay" system and paying the sales tax to vendors without their issuing separate invoices for each weekly payment.
RULING
Virginia Regulation (VR) 630-10-24 provides that "the dealer [your vendors, in this instance] must separately state the amount of the tax and add the tax to the sales price or charge." That same regulation further provides that "identification of the tax by a separate writing or symbol is not: required provided the amount of the tax is shown as a separate item on the record of the transaction."
In the instant case, the vendors have separately stated the tax on the contracts and the bid sheets submitted to the Taxpayer. Further, at the time the payment is approved as evidenced by the construction supervisor's verification, the vendor's charges for a particular phase of work, including the separately stated tax, have been identified. Accordingly, it appears that the provisions of VR 630-10-24 have been met, and the Taxpayer may continue to implement its "auto-pay" system.
I am also advised that the Taxpayer has developed suitable accounting procedures which would allow the department to verify the application of the tax to each transaction. It is important that these same procedures be adopted by your vendors since it is their responsibility to properly charge and collect the tax. I understand that the Taxpayer has briefed its vendors on using the "auto-pay" system, and their ability to verify the proper application of the tax to each transaction will go a long way to minimize issues in the event of an audit.
Furthermore, the Taxpayer and its vendors should understand that if separate charges for materials, labor and tax cannot be identified, the entire contract amount will be held subject to the tax. It is also important that the Taxpayer and its vendors be able to identify those contracts which include charges for fabrication labor and to properly apply the tax to those labor charges in accordance with the enclosed VR 630-10-37.
I trust that this information has addressed your concerns, but please contact the department if you have further questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7654I
Rulings of the Tax Commissioner