Tax Type
Retail Sales and Use Tax
Description
Direct pay permits; Purchase by contractor
Topic
Returns/Payments/Records
Date Issued
06-26-1996
June 26, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This is in reply to your letter of November 13, 1995, in which you seek correction of a retail sales and use tax assessment issued to ******** (the "Taxpayer") for the period October 1992 through June 1995.
FACTS
The Taxpayer, located outside Virginia, fabricates boilers and tanks. During the audit period, the Taxpayer fabricated six coal bins and a bunker to be used by a Virginia manufacturing concern (the "purchaser"). The bins and bunker were brought to Virginia by the Taxpayer for additional bolting, welding, and set in concrete. The Taxpayer paid use tax to Virginia on materials used to fabricate the bins and bunker.
Subsequently, the Taxpayer was informed by the purchaser that it had a direct pay permit. The purchaser noted on the purchase order revision that the Taxpayer should not pay tax on its invoice. The Taxpayer requested from the department a refund of the use tax previously paid, believing the purchaser was going to pay the tax under its direct pay permit. The refund request was initially denied; additional information was sent to the department and a refund was issued in August 1994.
The auditor determined the Taxpayer was fabricating the bins and bunker for its own use in the performance of a real property construction contract. The auditor found that the refund of use tax was improperly issued and assessed tax on the materials used to fabricate the tanks. You believe the purchaser is responsible for the tax based on its direct pay permit and request that the department abate the tax and interest assessed to the Taxpayer.
DETERMINATION
Virginia Regulation (VR) 630-10-27(G) 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 services with respect to real estate or fixtures thereon...." (Emphasis added). 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, installation, repair, and similar contracts."
In this case, the Taxpayer fabricated coal bins and a bunker which, when installed by the Taxpayer, became real property. Based on VR 630-10-27(G), the auditor properly treated the Taxpayer as a contractor with respect to real estate. The Taxpayer is the user and consumer of tangible personal property purchased and used in connection with the real property contract and is required to pay the tax on those purchases.
Code of Virginia § 58.1-624 (copy enclosed) sets out the provisions for a direct pay permit. Subsection D provides that upon receipt of a direct pay permit number, a dealer is absolved from all duties and liabilities for collection and remittance of the tax with respect to sales, distributions, leases, or storage of tangible Personal Property to the permit holder. In this case, the Taxpayer is not a dealer making retail sales of tangible personal property, but rather is the user and consumer of the tangible personal property. The direct pay permit number provided by the purchaser does not relieve the Taxpayer from its responsibility to remit the tax on purchases of materials used in connection with the real property contract.
While I am sympathetic to the Taxpayer's situation and apologize for any confusion resulting from the initial issuance of a refund by the department, I am bound by the clear language of the statute and regulations cited above. Accordingly, there is no basis to revise the assessment. The Taxpayer will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest.
If you have any questions regarding this matter, you may contact **** at ****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10530F
Rulings of the Tax Commissioner