Tax Type
Retail Sales and Use Tax
Description
Florists and nurseries; Nurseries
Topic
Taxability of Persons and Transactions
Date Issued
04-26-1996
April 26, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will reply to your letters of February 7, 1996 in which you seek correction of the recent sales and use tax audit of ******(the "Taxpayer") for the period of January 1993 through December 1995.
FACTS
The Taxpayer is a nurseryman in the business of selling at retail and also operating as a landscape contractor. As the result of a new computer system, the Taxpayer has been billing its landscape contract customers lump sum invoices which do not separately state the price of tangible personal property and labor. While the sales tax on all materials sold is separately stated at the bottom of the invoice, a breakdown between tangible personal property and labor is not itemized on the invoice. The auditor backed out the materials based on the tax shown on the invoice and assessed the Taxpayer on the labor portion of the invoice in accordance with Virginia Regulation (VR) 630-10-40. The Taxpayer is requesting that the department remove the tax on the labor charges from the audit as the labor and materials are separately itemized in the internal records of the Taxpayer.
The Taxpayer is also taking exception to the taxing of "plastic shade film covering" used in the winter storage of plants. In order to protect plants from winter weather, the Taxpayer covers plants on the ground with a plastic covering which is secured by steel rods placed at 4 foot intervals. These plastic coverings are utilized for approximately five months during the winter period after which time they are removed and discarded. Due to the fact that the plastic shade film covering was charged to the "greenhouse account," the auditor held it taxable as structural material in accordance with VR 630-10-4. The Taxpayer takes the position that the plastic shade film covering is not structural construction material and should be exempt as provided in VR 630-10-4.
DETERMINATION
In regard to the Taxpayer's billing practices, 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.
In the case at hand, the lump sum billing practice was the result of the utilization of a new computer system installed by the Taxpayer. Prior to the installation of the computer system, the Taxpayer was separating materials and labor on its invoices. Despite the lump sum billing, the Taxpayer did collect the tax associated with the tangible personal property sold. While the auditor was correct in assessing tax on the portion of the invoice associated with labor, it is understood by this office that the lump sum billing method was being used during a period that was examined by the department in the previous audit of the Taxpayer. Due to the fact that this billing method was not corrected during the previous audit, and the Taxpayer has been collecting and paying the tax on tangible personal property associated with lump sum billing jobs, l will agree to remove all labor taxed as a result of this audit. It is also the department's understanding that the lump sum billing method has been corrected and the Taxpayer will prospectively segregate materials and labor on customer invoices in the future.
In regard to the plastic shade film covering, VR 630-10-4 (copy enclosed) addresses "agriculture" and provides that the tax applies to structural construction materials, such as greenhouses, for use by nurserymen. This regulation goes on to provide that structural construction materials specifically excludes "shade cloth" used in agricultural production for market. Based on the information provided in your letter, it is apparent that the plastic shade film covering is not structural construction material, and is not used in conjunction with the greenhouse. It is used to protect plants from the weather during the winter months. As a result, I find that the plastic shade film covering is comparable to "shade cloth" specifically exempt under VR 630-10-4. The plastic shade film covering will be removed from the audit.
The audit assessment will be revised in accordance with the above and a revised assessment will be issued. If you should have any questions, please contact *** , Office of Tax Policy, at*****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11015K
Rulings of the Tax Commissioner