Tax Type
Retail Sales and Use Tax
Description
Construction; Materials purchased for use in another state
Topic
Taxability of Persons and Transactions
Date Issued
07-17-1995
July 17, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This will reply to your letter of February 23, 1995 in which you seek correction of a sales and use tax assessment to your client ***********(the "Taxpayer") for the period November 1991 through June 1994.
FACTS
The Taxpayer is an out-of-state contractor primarily engaged in production of asphalt and the resurfacing of roadways. The Taxpayer entered into a contract for the production of asphalt and the resurfacing of roadways in North Carolina. As a result, the Taxpayer placed a portable plant in Virginia to produce asphalt for use in connection with such real property construction project. The Taxpayer was held liable for untaxed purchases of quarried stone and asphalt additives used in the fabrication of asphalt. The Taxpayer is taking exception to the taxing of such materials and maintains that they were used in connection with a tax exempt project in North Carolina.
DETERMINATION
Virginia Regulation (VR) 630-10-27 defines "contractor" "as any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon, including highways, and in connection therewith furnish tangible personal property, whether such person be a prime contractor or subcontractor." The regulation further provides that "the law treats every contractor as the user or consumer of all tangible personal property [which becomes real property upon installation] furnished to him or by him in connection with real property construction, reconstruction,... and similar contracts."
In this case, the Taxpayer contracted to furnish and install tangible personal property which becomes real property upon installation. Therefore, the Taxpayer is operating as a real property contractor as provided in VR 630-10-27. As such, the purchase of tangible personal property by the Taxpayer for use in connection with its construction project is subject to taxation.
Notwithstanding the above, an exception to this general rule is set forth in Code of Virginia §58.1-609.3(1) which provides an exemption for "[T]angible property purchased by a contractor which is used solely in another state or foreign country, which could be purchased by such contractor for such use free from sales tax in such other state or in such foreign country, and which is stored temporarily in Virginia pending shipment to such state or country." This exemption is restricted to construction materials incorporated into exempt real property construction.
We have examined North Carolina's statutes and administrative rules to determine if the construction project qualifies as exempt real property construction in that state. North Carolina Administration Code (NCAC) §.2602 provides that contractors are treated as users and consumers of materials used in the performance of contracts and must pay the tax on their purchases. Furthermore, NCAC §.1701 provides that the exemption for the Department of Transportation does not extend to sales of tangible personal property to contractors for use in the performance of contracts with the Department of Transportation. However, NCAC §.2604 does provide an exemption for sales of sand, dirt, and stone to contractors if sold in its original or unmanufactured state by the producer in his capacity as a producer.
Since the Taxpayer could purchase the stone free of the tax in another state, the assessment will be adjusted to remove quarried stone used in connection with the Taxpayer's out-of-state construction project. However, based on the above, no exemption is provided in North Carolina for asphalt additives and other tangible personal property used in connection with such project. Therefore these items are subject to the tax in Virginia and were properly included in the audit. This determination is consistent with the department's December 6, 1990 letter to the Taxpayer, which limited the exemption (and the Form ST-11A for an earlier project) to purchases of stone.
Upon completion of the audit revisions, a revised notice of assessment will be forwarded to you. If you have any further questions, you may contact********Office of Tax Policy, at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9363T
Rulings of the Tax Commissioner