Tax Type
Retail Sales and Use Tax
Description
Storage bins for feed or grain; Construction; Agriculture
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
01-22-1997
January 22, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This will reply to your letter in which you seek correction of the retail sales and use tax audit of **** (the "Taxpayer") for the period of July 1990 through June 1996.
FACTS
The Taxpayer is an Ohio corporation in the business of real estate construction. The Taxpayer was audited and assessed tax on storage bins built and installed in the state of Virginia for use in the business of farming or agriculture. The storage bins are used to secure or store feed for livestock or grain for later delivery to market. The Taxpayer is taking exception to the taxing of the storage bins. The Taxpayer argues that the storage bins may be classified as "portable", thus removing them from the classification of real property and not taxable to the installer. The Taxpayer also feels that since the storage bins may be used to hold feed, they may be classified as a "feeding system", which is exempt under the agricultural exemption found in Virginia Regulation (VR) 630-10-4, copy enclosed.
DETERMINATION
VR 630-10-27 addresses the retail sales and use tax application to real property construction contractors and states the following:
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- A contractor is defined as any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon,... Unless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.
Code of Virginia § 58.1-609.2.1 (copy enclosed) provides an exemption from the retail sales and use tax and states, in part, the following:
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- Tangible personal property, except for structural construction materials to be affixed to real property owned or leased by a farmer, necessary for use in agricultural production for market and sold to or purchased by a farmer or contractor. (Emphasis added).
Based on the above, and by the Taxpayer's own admission, the Taxpayer is a using and consuming contractor. The storage bins in question consist of individual panels of porcelain applied to steel, secured in place on a concrete slab by bolts and sealants. In determining if tangible personal property remains tangible or becomes part of realty, the department looks to the intent of the party doing the installation. While the bins in question may be disassembled, removed and placed at another location, it is clearly the intent upon installation that the bins remain where installed. In addition, VR 630-10-4 states that the term "structural construction materials" includes storage bins installed by a contractor. For this reason, I find no basis for removing the storage bins based on the classification of the property. I have enclosed P.D. 86-58 (3/25/86) which further supports the department's position.
In regard to the Taxpayer's argument that the storage bins may be classified as a "feeding system", VR 630-10-4 states that "feeding systems" do not constitute structural construction materials exempt from the tax when sold to farmer producing agricultural products for market. The fact that the bins in question may be used to store feed is not in question by the department, however, the classification of a "storage bin" as a "feeding system" is problematic. The department has traditionally taken the position that in order for equipment to qualify as a "feeding system", the system must mechanically or automatically supply feed to livestock. In the present case, the bins in question are solely used to store feed and do not, mechanically or automatically, supply feed to agricultural livestock. For this reason, the department finds no basis for classifying the storage bins as feeding systems.
Based on all of the above, the department finds no basis to revise the audit. If you should have any questions, please contact *****Office of Tax Policy, at*******
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11838K
Rulings of the Tax Commissioner