Tax Type
Retail Sales and Use Tax
Description
Construction; Floor coverings
Topic
Taxability of Persons and Transactions
Date Issued
05-31-1996
May 31, 1996
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*****(the "Taxpayer"), for the period June 1991 through June 1994.
FACTS
The Taxpayer maintains a retail showroom of church supplies and furnishings for sale primarily to churches. The Taxpayer is engaged in the sale of pews and pew cushions, pulpit furnishings, choir robes, collection items, baptistries, and communion supplies. The Taxpayer also sells and installs floor coverings. The Taxpayer was assessed tax on untaxed sales made without exemption certificates. Tax was further assessed on sales involving real property installation. The audit has been adjusted because the Taxpayer obtained valid exemption certificates for several sales; however, the Taxpayer disputes a portion of the remaining tax. I will address the issues individually.
DETERMINATION
Glued-down carpet and tile
Code of Virginia § 58.1-609.8(2), copy enclosed, provides an exemption from the sales and use tax to virtually all purchases of tangible personal property by a nonprofit church used in carrying out the work of the church and its related ministries. The exemption does not apply to property used outside the public church building; property affixed to realty; and property used in recording and reproducing religious worship services. Virginia Regulation (VR) 630-10-22.1, copy enclosed, further interprets the exemption and provides that items affixed to or that become a part of real estate are taxable to churches.
The application of the tax to floor coverings is set forth in Code of Virginia § 58.1-610 and VR 630-10-27, copies enclosed. Both discuss the application of tax to materials used by contractors in the performance of their contract jobs. I am also enclosing Tax Bulletin 92-7 issued by the department on September 15, 1992. The regulation and bulletin provide that "floor coverings" are distinguished from "floors" themselves and are defined to include rugs, mats, padding, wall-to-wall carpets when installed by the tack strip or stretch-in methods, and other floor coverings which are not glued, cemented, or otherwise permanently attached to the floor below. Floor coverings which are glued, cemented, or otherwise permanently attached to the floor below are deemed to be floors.
Persons who sell and install floor coverings are considered either a retailer or contractor. A person is considered a retailer of floor coverings if such person maintains a retail or wholesale place of business, an inventory of floor coverings or their component parts, and if that person performs installation as part of the sale of the floor coverings. The sale of "floor coverings," as described above, by a retailer constitutes retail sales and the retailer must collect the tax on the sales price of the floor coverings. A retailer selling and installing "floors" is deemed a using and consuming contractor with respect to the floors and must pay the use tax on the cost price of the floor covering. In both instances, the retailer must pay the use tax on materials used in the installation of floor coverings.
A person selling and installing floor coverings, who is not a retailer, is considered a using and consuming contractor with respect to such items, regardless of the method in which the floor covering is installed. The contractor is subject to the tax on the costs of all materials used in the performance of the contact work and the tax is not collected from the purchaser.
The tax does not apply to installation charges when separately stated on the invoice under Code of Virginia § 58.1-609.5(2), copy enclosed. If the installation charge is not separately stated, the tax must be computed on the total invoice charge.
The Taxpayer makes several sales of carpet and tile to churches and installs by the glue-down method as a part of the sale. In this instance, the Taxpayer falls into the category of a retailer installing carpet and tile which becomes a part of real property upon installation. As such, the Taxpayer is deemed a using and consuming contractor with respect to the installation of "floors" and is required to pay the tax on the cost of all materials and supplies used in the installation work. These sales are listed in the audit at their retail amount. The Taxpayer has provided, for a majority of these sales, invoices for materials used as a basis for the computation of the tax. These invoices are accepted and the audit liability will be adjusted. For any sale that the Taxpayer cannot provide a corresponding invoice for materials, we presume the current assessment to be correct based on the available information.
Stained glass windows/chandelier styled lighting
The Taxpayer solicits sales of windows on behalf of a stained glass dealer located in Virginia. Additionally, the Taxpayer solicits sales of lighting fixtures for lighting dealers in and outside Virginia. The sales orders are written on dealer specific contract forms and customers' deposit checks are written to the dealers. The Taxpayer forwards the sales orders and checks to the dealers. The windows are furnished and installed by the window dealer. The lighting fixtures are shipped by common carrier directly to the church for installation by an electrician hired by the church. The Taxpayer asserts that it acts as a commissioned sales representative and that the window and lighting fixture dealers are responsible for any tax collection.
VR 630-10-22.1 lists items that are taxable to churches which includes "...stained glass windows, lighting fixtures and other property which when installed becomes a part of real estate." Essentially, these transactions constitute taxable sales to the church. Under Code of Virginia § 58.1-612 the tax is collectible from all persons who have sufficient activity in Virginia to qualify as a dealer. The Taxpayer has a showroom and offers tangible personal property for sale. This constitutes sufficient activity under Code of Virginia § 58.1-612(B)(3) and (C)(1) to require the Taxpayer to collect and remit the tax on its sales to churches. A copy of Code of Virginia § 58.1-612 is enclosed.
Sales to church/contractor
The Taxpayer asserts that despite receiving payment from a contractor, certain sales for use in reconstructing a portion of a church were invoiced to and for use by the church. The Taxpayer provides copies of the invoices to support its claim. Based on the information provided, line 32 and a portion of line 34 of the audit working papers constitute exempt sales to the church of pews and a baptistry and will be removed. Line 33 is a sale of stained glass windows, which is taxable as discussed. The remainder of Line 34 is subject to the tax computed on the cost of materials in accordance with the earlier discussion on glued-down carpet and tile. Line 39, as a duplicate of the installed carpet sale on line 34, will be deleted.
The auditor will revise the audit to reflect the necessary adjustments. The Taxpayer will receive a revised bill including interest accrued through the date of the letter of protest. The bill should be paid within 30 days to avoid the accrual of additional interest charges.
If you have additional questions, please do not hesitate to contact ****in the Office of Tax Policy at ***** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8576J
Rulings of the Tax Commissioner