Tax Type
Retail Sales and Use Tax
Description
Telecommunications; Construction; installation of telecommunications systems
Topic
Taxability of Persons and Transactions
Date Issued
11-16-1995
November 16, 1995
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****************
This is in response to your letter of October 23, 1995, seeking a ruling regarding the application of the tax to cabling used in the sale and installation of telecommunications systems. In the event that the department deems the Taxpayer a using and contractor with respect to its operation, the Taxpayer requests permission to be allowed to operate as a retailer.
FACTS
The Taxpayer is in the business of selling, installing and maintaining telephone and voice mail systems. In addition, the Taxpayer also installs computer cabling. As indicated in your letter, the Taxpayer treats itself as a retailer with respect to the supplies used in both the installation of telecommunication systems and computer cabling. The Taxpayer contends that the cabling used in the installation of the above mentioned items is purchased for resale and may be purchased tax exempt. Therefore, the Taxpayer charges its customers the tax on the itemized list of materials except for separately stated installation charges.
RULING
Virginia Regulation (VR) 630-102.2, (copy enclosed), provides that, "[t]he tax applies to the total charge for the sale or lease of intercom, interconnect and telephone systems. Separately stated charges for the installation of such systems are not subject to the tax." (Emphasis added).
This regulation continues, "[p]ersons engaged in the sale or lease of such systems must pay the tax on all equipment and supplies used in installation, including but not limited to, equipment and tools and wiring and other similar items." (Emphasis added). The department's long standing policy regarding the installation of telecommunications systems is discussed in the enclosed P.D. 91-50 (3/27/91), a case which appears nearly identical to the Taxpayer's.
In addressing the installation of computer cabling, VR 630-10-27 (G) (copy enclosed) provides that a "person selling and installing tangible personal property that becomes real property after installation is generally considered a contractor...." A contractor is defined in VR 630-10-27 (A) as "any person who contracts to perform construction, reconstruction, installation. repair or any other service with respect to real estate or fixtures thereon...." (Emphasis added). In the enclosed P.D. 92-29 (4/20/92), the department determined that computer cabling which is installed in walls and ceilings becomes a part of real property.
Therefore, in this case, the installation of computer cable is a service with respect to real estate and the Taxpayer is deemed to be a contractor, rather than a retailer, with respect to this service. Therefore, as a contractor, the Taxpayer is the user and consumer of all tangible personal property furnished to or by it in connection with the installation of the cabling and must pay the tax to its suppliers at the time of purchase of such property.
The Taxpayer's method of billing for the provision and installation of cabling as outlined in its letter is incorrect as it should not be charging its customers the sales tax. VR 630-10-27 (A) provides that "[a] contractor, whether he be a prime contractor or subcontractor, does not pass the sales and use tax on to anyone else as a tax. He will take the amount of the tax into consideration in submitting bids."
As a seller and installer of telecommunication systems and computer cabling, the Taxpayer clearly falls within the scope of the regulations quoted above. Accordingly, the Taxpayer is liable for the tax on all equipment and supplies, including wire and cable, used in both the installation of telecommunication systems and computer cabling. For this reason, the department is unable to allow the Taxpayer permission to treat itself as a retailer with respect to its operation.
If you have further questions regarding this issue, please contact *********, Office of Tax Policy, at**********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10428T
Rulings of the Tax Commissioner