Tax Type
Retail Sales and Use Tax
Description
Government contract outside Virginia; Temporary storage; Installation supplies
Topic
Exemptions
Property Subject to Tax
Date Issued
03-18-1994
March 18, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your correspondence in which you seek correction of a sales and use tax assessment issued to*********** ("the Taxpayer"). I note that the assessment has been paid in full.
FACTS
The Taxpayer is engaged in the sale and service of computer hardware and software and related information retrieval systems. An audit for the period June 1988 through April 1991 produced an assessment primarily for the Taxpayer's failure to pay the tax on certain purchases of tangible personal property. The only unresolved issue is the application of the tax to computer cables and connectors purchased by the Taxpayer for the installation and maintenance of local area networks for the federal government at locations in the District of Columbia.
The government contracts in this case call for the sale of tangible personal property to the government; consequently, most of the Taxpayer's purchases are deemed to be exempt purchases for resale. It was found, however, that while some of the computer cable retained its status as tangible personal property upon installation, other cable and connectors may have been installed in such a manner as to become part of real property. As such, the Taxpayer was assessed the tax on the purchase of cable and connectors which lost their identity as tangible personal property.
DETERMINATION
Virginia Regulation 630-10-27 provides that:
-
- Tangible personal property incorporated in real property construction which loses its identity as tangible personal property and becomes real property is deemed to be tangible personal property used or consumed by the contractor. Any sale ... for such a contractor is deemed a sale ... for the ultimate consumer (the contractor), and not for resale by the contractor. emphasis added)
Notwithstanding the above, Va. Code §58.1-609.3(1) provides an exemption from the tax for a contractor's purchases of tangible personal property "which is used solely in another state, ... which could be purchased by such contractor for such use free from sales tax in such other state, ... and which is stored temporarily in Virginia pending shipment to such state...."
In the instant case all of the Taxpayer's cable purchases could have been made free from sales tax in the District of Columbia: Cable which retains its status as tangible personal property could have been purchased under that jurisdictions's resale exemption; and cable which becomes incorporated in real property could have been purchased exempt of the tax pursuant to §438.8, Chapter 4, of the District of Columbia Sales and Use Tax Regulations. That regulation provides that materials and supplies purchased by a contractor who enters into a construction contract with the United States, and which become incorporated in real property, may be Purchased without payment of the tax.
Therefore, the computer cable and connectors in the instant case, which are delivered to Virginia but installed in the District of Columbia pursuant to a contract with the federal government, are exempt from the tax.
Accordingly, the charges for computer cable will be removed from the assessment and a refund will be issued to the Taxpayer as soon as practicable. As a precaution, however, the exemption set forth above applies only to tangible personal property which becomes real property upon installation. The exemption does not extend to equipment, tools or supplies used by the contractor in performance of the contract even if title to those items pass to the federal government.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/5947I
Rulings of the Tax Commissioner