Tax Type
Retail Sales and Use Tax
Description
Construction Materials
Topic
Exemptions
Date Issued
03-01-1996
March 1, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****************
This will reply to your letter of December 7, 1995, in which you request an exemption from the retail sales and use tax for construction materials used in a facility being built by **********(the "Taxpayer").
FACTS
In Public Document (P.D.) 95-80 (4/12/95) (copy enclosed), the department ruled that a local Industrial Development Authority (IDA), acting as a general contractor under a construction contract, may purchase construction materials exempt of the sales tax pursuant to Code of Virginia § 58.1-609.1 (4), provided that the purchases are made pursuant to official purchase orders to be paid out of public funds. Furthermore, subcontractors were not liable for use tax on the materials furnished by the IDA, based on Code of Virginia § 58.1-610(B), which provides that contractors are not subject to the use tax when provided with tangible personal property purchased by a government entity for use in real property construction contracts.
Based on this ruling, you request authorization to purchase construction materials for the Taxpayer's facility exempt of the tax.
RULING
P.D. 95-80 addressed a situation in which the construction contract provided that the local IDA act as general contractor and purchase construction materials directly on its credit Pursuant to official IDA Purchase orders using IDA funds. The IDA's credit was bound in the performance of the contracts with its subcontractors and suppliers. Though P.D. 95-80 allowed certain construction materials to be purchased exempt of the tax, it did not represent a change in the general rule that contractors are deemed to be the taxable users or consumers of any property used in connection with a real estate construction contract. In fact, the ruling expressly stated that "purchases by the subcontractors, rather than by the IDA, in connection with the real property construction contracts will generally be subject to the tax. Only in instances where the credit of the IDA is bound directly and the subcontractor has been officially designated as the purchasing agent for the IDA will such purchases be deemed exempt from the tax. See VR 630-10-27(J)." (Emphasis in original)
In the Taxpayer's case, there is no documentation indicating that (1) the local IDA is purchasing the construction materials as general contractor, (2) the IDA's credit is bound, and (3) the contractor has been officially designated as the purchasing agent for the IDA. Absent such documentation, the department cannot grant your request and provide authorization to purchase construction materials exempt of the tax. However, if a construction contract has been executed which conforms to the provisions outlined in P.D.95-80, we are willing to review it and issue the appropriate ruling.
If you have any questions regarding this matter, or if the department can be of additional assistance, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10679F
Rulings of the Tax Commissioner