Tax Type
Retail Sales and Use Tax
Description
Construction; Water pumping and treatment equipment
Topic
Taxability of Persons and Transactions
Date Issued
05-30-1996
May 30, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This will reply to your letter of April 5, 1996 in which you seek correction of the sales and use tax audit of ***** (the "Taxpayer") for the period of March 1992 through February 1995.
The Taxpayer is in the business of repair, installation and distribution of water pumping and water treatment equipment for concerns other than regulated public utilities. The Taxpayer was audited and assessed tax on the expense reimbursement to company employees for the purchase of ice from convenient stores. The Taxpayer is taking exception to these reimbursements being held taxable. The majority of ice was purchased by employees when they were working outside the State of Virginia. In addition, the Taxpayer asserts that based on past experience, it is highly unlikely that convenient stores would not collect the tax.
The Taxpayer is also taking exception to the taxing of water tanks installed by a third party (the "Installer") for the Taxpayer. The Taxpayer contracts with the Installer to fabricate and install water tanks. The installation involves the bolting of the fabricated tanks onto concrete pads. Once the tanks are installed, the Taxpayer then connects the tanks to the water system with nuts, bolts and minor piping configurations. The auditor held the tanks as the purchase of tangible personal property by the Taxpayer and takes the position that the tanks do not become real property until the water supply connections are made.
As provided in your letter, the expense reimbursements paid to your employees for ice purchases are treated as a flat rate per diem. This is based on the fact that the nominal amount paid for such item does not warrant the maintaining of receipts. Based on the fact that the majority of such purchases were purchases of ice made outside Virginia, and the fact that convenient stores are generally set up to automatically add the tax on all purchases through computerized cash registers, I will agree to remove the ice reimbursement charges from the audit sample.
With regard to the water tanks, Virginia Regulation (VR) 630-10-27(D) provides for the department's tax treatment of a fabricator who fabricates tangible personal property for use and consumption in real property construction and states, in part, the following:
Based on the information provided in your letter, the installer bolts the fabricated tanks to a concrete slab at the time of installation. It is also noted in your letter that moving the tank once it is installed would not only be cost ineffective, but would also result in damage or destruction of the tank itself. Based on these facts, it is apparent that the intent of the Taxpayer is to permanently maintain the tanks where they are erected and installed. For this reason, I find that the tanks become real property at the time of installation and the Installer is the using and consuming contractor with respect to the installation of such tanks. As a result, I will agree to remove the tanks from the audit.
A representative from our****District Office will contact the Taxpayer to make the revisions set forth above and issue a revised assessment. If you should have any questions, please contact *****, Office of Tax Policy at*****
Danny M. Payne
Tax Commissioner
OTP/11106K
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This will reply to your letter of April 5, 1996 in which you seek correction of the sales and use tax audit of ***** (the "Taxpayer") for the period of March 1992 through February 1995.
FACTS
The Taxpayer is in the business of repair, installation and distribution of water pumping and water treatment equipment for concerns other than regulated public utilities. The Taxpayer was audited and assessed tax on the expense reimbursement to company employees for the purchase of ice from convenient stores. The Taxpayer is taking exception to these reimbursements being held taxable. The majority of ice was purchased by employees when they were working outside the State of Virginia. In addition, the Taxpayer asserts that based on past experience, it is highly unlikely that convenient stores would not collect the tax.
The Taxpayer is also taking exception to the taxing of water tanks installed by a third party (the "Installer") for the Taxpayer. The Taxpayer contracts with the Installer to fabricate and install water tanks. The installation involves the bolting of the fabricated tanks onto concrete pads. Once the tanks are installed, the Taxpayer then connects the tanks to the water system with nuts, bolts and minor piping configurations. The auditor held the tanks as the purchase of tangible personal property by the Taxpayer and takes the position that the tanks do not become real property until the water supply connections are made.
DETERMINATION
As provided in your letter, the expense reimbursements paid to your employees for ice purchases are treated as a flat rate per diem. This is based on the fact that the nominal amount paid for such item does not warrant the maintaining of receipts. Based on the fact that the majority of such purchases were purchases of ice made outside Virginia, and the fact that convenient stores are generally set up to automatically add the tax on all purchases through computerized cash registers, I will agree to remove the ice reimbursement charges from the audit sample.
With regard to the water tanks, Virginia Regulation (VR) 630-10-27(D) provides for the department's tax treatment of a fabricator who fabricates tangible personal property for use and consumption in real property construction and states, in part, the following:
-
- A fabricator who contracts to perform services with respect to real estate construction, and in connection therewith to furnish tangible personal property for incorporation in real estate construction thereby causing it to lose its identity as tangible personal property by becoming real property, is classified as a using or consuming contractor and must pay the tax on the cost price of the raw materials which make up such fabricated property.
Based on the information provided in your letter, the installer bolts the fabricated tanks to a concrete slab at the time of installation. It is also noted in your letter that moving the tank once it is installed would not only be cost ineffective, but would also result in damage or destruction of the tank itself. Based on these facts, it is apparent that the intent of the Taxpayer is to permanently maintain the tanks where they are erected and installed. For this reason, I find that the tanks become real property at the time of installation and the Installer is the using and consuming contractor with respect to the installation of such tanks. As a result, I will agree to remove the tanks from the audit.
A representative from our****District Office will contact the Taxpayer to make the revisions set forth above and issue a revised assessment. If you should have any questions, please contact *****, Office of Tax Policy at*****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11106K
Rulings of the Tax Commissioner