Tax Type
Retail Sales and Use Tax
Description
Record-keeping requirements; Contract method of payment and invoice-free accounting system
Topic
Returns/Payments/Records
Date Issued
04-01-1996
April 1, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear******************
This will reply to your letter of November 10, 1995 in which you request a ruling as to the proper sales and use tax treatment of your client, (the "Taxpayer"), engaged in the business of home building.
The Taxpayer is a builder who engages the services of various contractors and subcontractors to construct homes. In this connection the Taxpayer may also purchase some supplies. In order to simplify the Taxpayer's method of payment to both the contractors and suppliers, the Taxpayer is considering an alternative system of payment. This system eliminates the invoice/payment method, and institutes a contract method of payment. In this system, the Taxpayer would enter into a written contract with all contractors and suppliers, and each contract will break out the phases of construction activity. Each phase of activity will be itemized on Schedule A of the contract and include the following: i) Reference number; ii) Date of payment; iii) Location of development or subdivision code; iv) Lot and building number; v) Activity code; vi) Description of activity or materials purchased; and vii) Total payment which includes tax as set forth in the contract. The Taxpayer will not be invoiced by any of the contractors or suppliers and will pay based on the completion of each phase itemized on Schedule A. The Taxpayer is requesting permission from the department to implement this type of payment method, as opposed to the contractor and suppliers invoicing all work and supplies purchased.
Code of Virginia § 58.1-610 addresses "contractors" and provides that "any person who contracts... to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use and consumption." Any contractor or subcontractor doing real property contract work for the Taxpayer, would be liable for all sales and use tax on all materials purchased by them for use in fulfilling such contract. Therefore, the contract method of payment to contractors and subcontractors has no consequence with respect to taxes owed the State of Virginia.
With regard to the Taxpayer's request to implement an invoice-free accounting system with respect to supplies purchased by the Taxpayer, Virginia Regulation (VR) 630-10-30, copy enclosed, provides that "every person who is liable for collection of sales tax and/or remittance of use tax is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability." This regulation goes on to say that such records must include a record of all merchandise purchased, including a bill of lading, invoice, purchase order or other evidence to substantiate each purchase.
Based on the information you have provided, it appears that under the alternative accounting system proposed, the Taxpayer will maintain adequate internal records to substantiate each purchase and the tax paid thereon. Provided these requirements are met, I find basis for approval of this system.
If you should have any questions, please contact **** , Office of Tax Policy, at***** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10675K
Re: Request for Ruling: Retail Sales and Use Tax
Dear******************
This will reply to your letter of November 10, 1995 in which you request a ruling as to the proper sales and use tax treatment of your client, (the "Taxpayer"), engaged in the business of home building.
FACTS
The Taxpayer is a builder who engages the services of various contractors and subcontractors to construct homes. In this connection the Taxpayer may also purchase some supplies. In order to simplify the Taxpayer's method of payment to both the contractors and suppliers, the Taxpayer is considering an alternative system of payment. This system eliminates the invoice/payment method, and institutes a contract method of payment. In this system, the Taxpayer would enter into a written contract with all contractors and suppliers, and each contract will break out the phases of construction activity. Each phase of activity will be itemized on Schedule A of the contract and include the following: i) Reference number; ii) Date of payment; iii) Location of development or subdivision code; iv) Lot and building number; v) Activity code; vi) Description of activity or materials purchased; and vii) Total payment which includes tax as set forth in the contract. The Taxpayer will not be invoiced by any of the contractors or suppliers and will pay based on the completion of each phase itemized on Schedule A. The Taxpayer is requesting permission from the department to implement this type of payment method, as opposed to the contractor and suppliers invoicing all work and supplies purchased.
RULING
Code of Virginia § 58.1-610 addresses "contractors" and provides that "any person who contracts... to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use and consumption." Any contractor or subcontractor doing real property contract work for the Taxpayer, would be liable for all sales and use tax on all materials purchased by them for use in fulfilling such contract. Therefore, the contract method of payment to contractors and subcontractors has no consequence with respect to taxes owed the State of Virginia.
With regard to the Taxpayer's request to implement an invoice-free accounting system with respect to supplies purchased by the Taxpayer, Virginia Regulation (VR) 630-10-30, copy enclosed, provides that "every person who is liable for collection of sales tax and/or remittance of use tax is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability." This regulation goes on to say that such records must include a record of all merchandise purchased, including a bill of lading, invoice, purchase order or other evidence to substantiate each purchase.
Based on the information you have provided, it appears that under the alternative accounting system proposed, the Taxpayer will maintain adequate internal records to substantiate each purchase and the tax paid thereon. Provided these requirements are met, I find basis for approval of this system.
If you should have any questions, please contact **** , Office of Tax Policy, at***** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10675K
Rulings of the Tax Commissioner