Tax Type
Retail Sales and Use Tax
Description
Construction; Contractors and retailers distinguished
Topic
Taxability of Persons and Transactions
Date Issued
03-31-1997
March 31, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****
This is in reply to your letter in which you seek reconsideration of a prior ruling by the department regarding the application of the retail sales and use tax to****** (the "Taxpayer").
FACTS
The Taxpayer is an out-of-state manufacturer of kitchen cabinets and bathroom vanities and sells on an installed basis. The Taxpayer maintains a showroom that displays its line of products, and warehouses at the same location various component parts of its products. I
The department previously determined the Taxpayer to be a retailer based on Code of Virginia § 58.1-610(D) and 23 VAC 10-210-410(G). The Taxpayer disagrees and believes it does not meet all the elements necessary to be deemed a retailer, but instead qualifies as a using and consuming contractor based on the overall nature of its business activity in Virginia.
RULING
Code of Virginia 58.1-610(D) provides an exception to the general contractor rule and states that:
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- Any person selling fences, venetian blinds, window shades, awnings, storm windows and doors, locks and locking devices, floor coverings (as distinguished from the floors themselves), cabinets, kitchen equipment, window air conditioning units or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items.
For purposes of the exception to the general contractor rule, a retailer is defined in 23 VAC 10-210-410(G) as "[a]ny person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of the aforementioned items, and who performs installation as part of or incidental to the sale of the aforementioned items."
Place of business: The Taxpayer maintains a showroom at its business location in Virginia for purposes of displaying products. The Taxpayer asserts that over 95% of its sales in Virginia result from contracts with builders to supply and install complete kitchen units in new building projects. According, to the Taxpayer, the purpose of its place of business is to provide builders' customers with a design center to choose a kitchen or bathroom layout for installation in new home construction and not for the purposes of soliciting retail sales from the general public.
The fact that a majority of the Taxpayer's sales in Virginia are to customers of residential building contractors does not negate the Taxpayer's classification as a retailer. The statute specifically states that a seller of kitchen cabinets shall be deemed a retailer regardless of whether the sale and installation are provided to contractors or other customers. Further, the regulation does not speak to the type of customer served at the place of business. Instead, the regulation merely requires the existence of a retail or wholesale place of business.
Inventory: The Taxpayer maintains that a qualifying inventory for purposes of being classified a retailer must consist of finished goods and therefore, does not believe that it maintains an inventory as contemplated under the regulation. The Taxpayer contends that it maintains a small inventory of parts kept on hand for use in routine warranty service.
Representatives of the department made a visual inspection of the inventory in question and observed an assortment of cabinets, materials, and component parts that make up the kitchen and bathroom units sold by the Taxpayer. The fact that the Taxpayer maintains materials which enter into or become a component part of cabinets or cabinet units is sufficient to qualify as an inventory under the regulation.
Installation: The Taxpayer provides installation as part of its sales contracts and therefore, the Taxpayer meets the third element in the regulation to be deemed a retailer.
The department is bound by Code of Virginia § 58.1-610(D) which is clear and controlling in this instance. The Taxpayer is classified as a retailer because (1 ) it is a seller of kitchen cabinets, and (2) it meets the requirements of a retailer as defined in the regulation. Based on the statute and the regulation, I must uphold my previous ruling that the Taxpayer is deemed a retailer and must treat its transactions as taxable sales, except that installation charges when separately stated on the invoice are exempt from the tax.
If you need assistance in the future, please do not hesitate to contact ****in the ***Regional Office at ********* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11531J
Rulings of the Tax Commissioner