Tax Type
Retail Sales and Use Tax
Description
Construction; Florists and nurseries
Topic
Taxability of Persons and Transactions
Date Issued
11-22-1996
November 22, 1996
Dear*************
This will reply to your letter in which you seek correction of a sales and use tax assessment issued to ********** (the Taxpayer) for the period July 1992 through June 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a building contractor. As a result of the department's audit, an assessment was made for untaxed purchases. The Taxpayer contests certain purchases and maintains that the subcontractor correctly paid the tax on such materials. At issue is the assessment on: (I) the purchase of fixtures, i.e., fireplace lights, light bulbs, etc. and (ii) the purchase of shrubs, mulch, and landscape materials.
DETERMINATION
Fixtures
In this case, the Taxpayer purchased fixtures from a supplier and subcontracted with the supplier's subsidiary corporation, a real estate contractor, for the installation of the fixtures in newly constructed homes. Under the terms of the subcontract agreement, the subsidiary corporation agrees to furnish all labor, materials, tools, equipment, etc. necessary to complete the contract. The agreement further provides that the fixtures are extra and will be separately billed by the supplier. The Taxpayer questions the assessment on fixtures as the supplier has already paid the tax on these items. The Taxpayer argues that the supplier and the subsidiary operate as one business. As such, the supplier is a contractor and liable for the tax.
Purchases of tangible personal property by contractors for use in performing a real estate contract are taxable to the contractor at the time of purchase as provided under Virginia Regulation (VR) 630-10-27(A). This same regulation provides that ``if a supplier of a contractor... does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier.' As a building contractor, the Taxpayer is the user and consumer of materials purchased.
In the instant case, the supplier is making retail sales of fixtures and is not a contractor as it does not perform real property construction. Code of Virginia § 58.1-612 (copy enclosed) provides that the sales and use tax shall be collectible from all persons who are dealers. The term dealer includes every person who sells at retail, or offers for sale at retail, tangible personal property in Virginia. The supplier meets the definition of ``dealer' as defined above and is required to collect the tax on the sale of tangible personal property. As the supplier did not charge the tax on the sale of fixtures in this case, the Taxpayer is responsible for payment of the use tax on these purchases. While the Taxpayer argues that the supplier and the subsidiary operate as one business and paid the tax as a contractor, they are two separate legal entities.
Based on the foregoing, I find that the auditor properly assessed the tax on the purchase of the fixtures in this case. The Taxpayer requests that the department give credit in the audit for the tax paid by the supplier. The Taxpayer provides copies of purchase invoices obtained from the supplier to support its claim that the tax was paid on the cost price of the fixtures. The Taxpayer, however, is required to pay the tax on the sales price, including any mark-up on the product sold. While the information provided may verify that the supplier pays the tax on its purchases, the invoices do not verify that the tax was paid on the items held in the audit. The Taxpayer will be given the opportunity to provide documentation showing that the tax was paid by its supplier for each of the contested items. If the requested information is provided, I will allow credit against the assessment to the extent of the tax shown paid by the supplier.
Landscape shrubs. mulch. and materials
The Taxpayer subcontracted with a landscape contractor for the purchase and installation of shrubbery. In addition, the contractor built a planter box. The Taxpayer takes exception to the taxing of the shrubbery and maintains that the contractor paid the tax on these items when purchased from its supplier. The Taxpayer further maintains that it provided the materials to build the planter and the charges by the contractor are for labor only.
VR 630-10-40, copy enclosed, provides that, ``when a nurseryman... or other person makes retail sales of shrubbery and similar items, and as a part of the transaction agrees to transplant them on the land of the purchaser for a lump sum, the tax applies to the total charge.' This regulation goes on to provide that the tax does not apply to the transplanting charge, provided the transplanting charge is separately stated on the invoice.
The retail sales tax is imposed on the gross sales price of tangible personal property when sold at retail or distributed in Virginia. Code of Virginia § 58.1-602 (also see Virginia Regulation (VR) 630-10-95, copy enclosed, defines ``sales price' to be... the total amount for which tangible personal property or services are sold... without deduction therefrom on account of the cost of the property sold, the cost of materials used. labor or service costs, losses or any other expenses whatsoever. (Emphasis added).
Based upon a review of the purchase invoices provided by the Taxpayer, l will agree to remove the tax assessed to invoice 0003064 as this charge is for labor only. With respect to invoice 0002869, this charge is for the purchase of shrubbery and is a taxable retail sale as provided under VR 630-10-40. Lastly, while you maintain that invoice 0003150 and 0003191 represent labor charges to plant shrubbery and remulch shrub beds, the invoice does not indicate that such charges are for labor only. Accordingly, these items will remain correct as assessed. With respect to the planter box, invoice 0003090 represents a lump sum charge for the building of a planter box which includes labor, spikes, rebar, and tools. As the contractor did not separately state the labor charges on the invoice, the tax was correctly assessed to the total sales amount.
Summary
The audit will be revised according to the determination in this case. The Taxpayer will receive an updated bill with interest accrued through the date of the letter of protest. Furthermore, if the Taxpayer can provide additional documentation regarding the tax paid by the supplier, additional revisions will be made. This documentation should be sent to the auditor within 60 days of the date of this letter. If you have questions regarding this letter, please contact *** at ***.
Sincerely
Danny Payne
Rulings of the Tax Commissioner