Tax Type
Retail Sales and Use Tax
Description
Signs; Retail sales vs. real property contracts
Topic
Taxability of Persons and Transactions
Date Issued
06-27-1996
June 27, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This is in reply to your letter in which you request permission to collect the sales tax on a retail basis for signs fabricated and installed by ********* (the "Taxpayer"). Your request is a result of an audit for the period October 1991 through September 1994.
FACTS
The Taxpayer manufactures and installs signs in and outside Virginia. The auditor determined that 55% of the Taxpayer's sales of signs are affixed to real estate upon installation. The other 45% are signs that remain tangible personal property upon installation. The auditor determined that the Taxpayer must pay the tax on materials used to fabricate signs that become real property upon installation and collect the tax from its customers on sales of signs that remain tangible personal property, pursuant to Virginia Regulation (VR) 630-10-100. The auditor applied the department's policy prospectively.
The Taxpayer asserts that it is placed at a competitive disadvantage with sign manufacturers in other states that treat the sale of signs as retail sales regardless of whether such signs become real property upon installation. The Taxpayer appeals the determination by the auditor and requests consideration to treat signs fabricated and sold in Virginia as retail transactions.
DETERMINATION
In Public Document 96-133 (6/14/96), copy enclosed, a taxpayer raised the same issues regarding sales tax collection in situations where a sign is treated as real property in Virginia and a retail sale in another state. As provided in the ruling, the department's policy is governed by VR 630-10-100 which provides the rules for the collection of the sales tax when signs are permanently affixed to realty and when signs remain tangible personal property upon installation.
The department is aware of the competitive disadvantage placed upon the Taxpayer and similar sign manufacturers in Virginia. The department, however, is bound by the statutes enacted by the General Assembly, as interpreted in the department's regulations. Currently, there is no statutory or regulatory authority to exempt the purchase of materials used in Virginia to fabricate a sign which will be installed in another state.
A possible solution, as discussed in P.D. 96-133, is the use of the direct pay permit which would allow the Taxpayer to purchase sign construction materials exempt of the sales tax and then remit such tax directly to the department on materials used in Virginia to fabricate signs affixed to real estate, as well as installation materials, supplies and other tangible personal property.
Since the Taxpayer believes the use of a direct pay permit may be administratively burdensome, another alternative would be to pursue exemption legislation during the 1997 General Assembly session. The enclosed questionnaire for legislative consideration of a sales and use tax exemption should be completed and forwarded to the legislator who will sponsor the bill for exemption. The legislator must sign the questionnaire and submit it to the department by November 1, 1996. Tax Bulletin 94-13, which explains the procedure and information required for consideration of exemption requests, is also enclosed.
The Taxpayer must follow the instructions provided at the conclusion of its audit. The next audit will be performed in accordance with the policy as discussed in this letter. If you have additional questions, please contact **** in the Office of Tax Policy at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8895J
Rulings of the Tax Commissioner