Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Nonprofit hospitals
Topic
Taxability of Persons and Transactions
Date Issued
10-16-1996
October 16, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear******************
This is in reply to your letter of September 30, 1996 in which you seek information on the application of the sales and use tax to purchases by ********** (the "Taxpayer").
FACTS
The Taxpayer is a nonprofit hospital entitled to the sales tax exemption under Code of Virginia § 58.1-609.7(4). The Taxpayer intends to erect a medical facility and will serve as the general contractor for the construction project. The Taxpayer will purchase the building materials, machinery, and equipment for incorporation in constructing the facility. Various subcontractors will construct the facility and install the machinery and equipment.
The Taxpayer believes that the purchases incorporated into the construction of the facility qualify for exemption as purchases by a nonprofit hospital, notwithstanding the provisions of Code of Virginia § 58.1-610(B). To support its position, the Taxpayer cites P.D. 95-80 (4/12/95).
RULING
Code of Virginia § 58.1-609.7(4) provides an exemption from the sales and use tax for "[t]angible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home."
Code of Virginia § 58.1-610 and Virginia Regulation (VR) 630-10-27 (23 VAC10-210--410) provide the basic rules and application of the tax to contractors engaged in real property construction. Generally a contractor is considered to be the user and consumer of all tangible personal property incorporated into real property construction. The statute and regulation also provide that tangible personal property purchased tax exempt does not retain its exempt status in the hands of a contractor.
The issue presented by the Taxpayer was previously addressed in P.D. 94-200 (6/28/94), copy enclosed. The ruling dealt with a contractor engaged in the construction of a facility for a nonprofit hospital. Under the terms of its contract, the contractor was designated the hospital's purchasing agent entrusted with signatory power over hospital funds. The Tax Commissioner determined that while the conferral of agency status from the hospital to the contractor entitled the contractor to purchase exempt of the tax, it would not immunize the contractor from the tax on furnished property previously purchased tax exempt. The same rationale applies in this instance. While the Taxpayer may be entitled to purchase the property exempt of the tax, the subcontractors would become liable for the use tax on the property once it is furnished to them for use in construction. The nonprofit hospital exemption was not extended to the contractor in P.D. 94-200 and the same is true in this case.
Code of Virginia § 58.1-610(B) provides an exception to the general contractor rule for property furnished to a contractor that would otherwise enjoy one of the governmental exemptions under Code of Virginia § 58.1-609.1(4). This was the case in P.D. 95-80 which dealt, in part, with property furnished to subcontractors by an Industrial Development Authority (IDA) for use in construction. Based on the statute, which is further clarified in VR 630-10--27(A), the subcontractors in P.D. 95-80 were not held liable for use tax on property furnished by the IDA, a political subdivision of the Commonwealth, entitled to exemption under Code of Virginia § 58.1-609.1(4).
The exception to the general contractor rule provided in Code of Virginia § 58.1-610(B) does not include property furnished to contractors by exempt nonprofit hospitals. As such, the department has no authority to grant exemption for property furnished to subcontractors in this case.
If you have questions regarding this ruling, you may contact*******at ****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11688J
Rulings of the Tax Commissioner