Tax Type
Retail Sales and Use Tax
Description
Construction; Fence materials
Topic
Taxability of Persons and Transactions
Date Issued
09-21-1995
September 21, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********************
This will reply to your letter in which you seek correction of sales and use tax assessed to your client,****************(the "Taxpayer"), for the period February, 1991 through December, 1993.
FACTS
The Taxpayer is engaged in the sale and installation of fencing products and was assessed tax on lump sum charges to customers for fabrication and installation where such charges were not itemized or separately stated on the invoice. The Taxpayer asserts that 95% of the fencing installed is chain-link which does not involve fabrication, despite the use of the term on several invoices. Based on this, the Taxpayer does not agree that tax should be assessed on the entire invoice amount.
The Taxpayer was previously audited as one of two locations of a single corporate entity; however it has since become a separate corporate entity and was viewed as such for the current audit. The former corporation still operates as one location and has been audited for the same audit period. The prior audit (which involved the former corporation and the current Taxpayer) was contested relating to the issue of separately stated installation charges, and the Taxpayer contends that it has properly invoiced its customers based on instructions provided by the department upon settlement of the appeal. The Taxpayer further protests that the instructions provided are now unreliable and it is being subjected to annual audits.
DETERMINATION
Code of Virginia § 58.1-610(D) provides that "[a]ny person selling fences...shall be deemed to be a retailer...whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items." Virginia Regulation (VR) 630-10-27(H) provides that "[a]ny person who sells tangible personal property at retail and installs such property as part of or incidental to the sale is a retailer and is required to add the sales tax to the sales price. The tax does not apply to installation charges when separately stated on a sales invoice. If the installation charge is not separately stated, the tax must be computed on the total charge."
A review of the audit working papers indicates that tax was assessed on invoices where the total charge is listed as "Fabricate and Install" or"Furnish and Install" or"F and I". The auditor did not assess tax based on the Taxpayer's involvement in fabrication, but instead because the Taxpayer failed to separately state installation charges on its customers' invoices in accordance with the regulation. The auditor also relied upon P.D. 91-311 (12/20/91) and P.D. 92-262 (12/28/92) in which the Tax Commissioner advised the Taxpayer that it must separately list installation charges on its customers' invoices to avoid the assessment of additional tax upon the total invoice charge in the future.
The Taxpayer asserts that it properly followed instructions from the department in a final settlement letter dated June 4, 1993 and that now such guidance is unreliable. The final settlement of the prior audit dealt with the fact that management at that time had assumed corporate control subsequent to the audit period for which tax had been assessed. There were no instructions provided that directed the Taxpayer to invoice its customers in a manner other than what was stated in the previous correspondence from the department. As a matter of fact, the department again advised the Taxpayer that installation charges must be separately stated on the invoice to the customer to avoid the application of the tax. The letter went on to emphasize that the department's policy would apply to the Taxpayer's succeeding audit.
In addition, the prior audit covered the period June, 1987 through April, 1990. The new management did not assume control until April 30, 1991. To avoid the assessment of tax to the period when the former management was not in compliance, the department directed that revised invoices, reflecting separately stated installation charges, be issued to customers. There is evidence that this may not have occurred because several invoices were taxed in this audit for the months February, March, and April, 1991.
Finally, although I am sympathetic to the burdens that may be placed upon a business due to an audit, there is no evidence to suggest that the department has subjected the Taxpayer or the former corporation to annual audits. The prior audit covered the period June, 1987 through April, 1990. The succeeding audits for both corporations covered the period February, 1991 through December, 1993.
Based on the aforementioned, the auditor properly applied the tax and the assessment is valid. The Taxpayer will receive an updated "Notice of Assessment", including accrued interest, under separate cover.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7870J
Rulings of the Tax Commissioner