Tax Type
Retail Sales and Use Tax
Description
Consumer liability; Tax as legal debt of purchaser
Topic
Collection of Delinquent Tax
Date Issued
04-29-1997
April 29, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
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 June 1991 through September 1996.
FACTS
The Taxpayer is a contractor and was assessed the tax on untaxed purchases of fixed assets and expensed items. The Taxpayer maintains that the purchase of concrete forms is exempt under the occasional sale exemption. In addition, the Taxpayer questions the tax on labor charges included in the purchase price of truck racks. Further, should the department find the above items taxable, the Taxpayer believes that the department should hold the Virginia suppliers liable for the tax they failed to charge and collect from the Taxpayer.
DETERMINATION
Purchase of concrete forms
The Taxpayer purchased concrete forms from a concrete supplier. The supplier in this case is a dealer which holds a certificate of registration authorizing it to collect the tax on its sales. The Taxpayer contends that the supplier's only activity is the sale of ready-mix concrete and the sale of the concrete forms is rare and therefore should be deemed an exempt occasional sale.
Code of Virginia § 58.1-609.10(2) provides an exemption from the tax for an occasional sale. An "occasional sale" is defined in § 58.1-602 to mean:
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- A sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration, including the sale or exchange of all or substantially all the assets of any business... or the liquidation of any business, provided such sale or exchange is not one of a series of sales and exchanges sufficient in number, scope and charter to constitute an activity requiring the holding of a certificate.
Title 23 of the Virginia Administrative Code (VAC) 10-210-1080.2 further addresses the occasional sale exemption. As noted in the regulation, a registered dealer "is not entitled to an occasional sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise [the dealer] regularly sells."
I cannot agree that this transaction is an occasional sale. As can be seen from the above, a registered dealer is not allowed an occasional sale exemption for the mere fact that the article sold differs in type or class form the products he normally sells. Accordingly, this transaction is deemed to be correct as assessed.
Purchase of truck racks
The Taxpayer contracted with a vendor to make truck racks. The vendor charged the Taxpayer a fee to cut, shape, and weld the pipe to make the customized truck racks to fit the Taxpayer's vehicles. The Taxpayer agrees that the materials are taxable but contends that the labor charges are not subject to the tax.
Title 23 VAC 10-210-560 provides that "An operation which changes the form or state of tangible personal property is fabrication. Fabrication is distinguished from repair which is an operation that restores a used or worn piece of tangible personal property...The tax applies to the total charge for the fabrication of tangible personal property on a special order for a consideration, including labor, even if charges for labor are separately stated ..." (Emphasis added)
The department has consistently held that fabrication labor is taxable. In this case, the labor charges included in the assessment are in connection with the fabrication of tangible personal property and therefore subject to the tax.
Seller's responsibility for collection of the tax
The Taxpayer believes the seller should be held responsible for the collection of the tax. While Code of Virginia § 58.1-612 legally requires dealers to collect and remit the sales tax on all sales or leases of tangible personal property, Code of Virginia § 58.1-625, copy enclosed, makes the tax the legal debt of the purchaser. This has been recognized by the federal courts, which have held that "the legal incidence of the Virginia sales and use tax is on the purchaser." See United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), copy enclosed. As such, the department may proceed against either the seller or the purchaser in instances where the tax has not been collected or paid.
Summary
Based on the foregoing, l find no basis for adjusting the assessment. The Taxpayer will receive a revised bill, with updated interest. This bill should be paid within 30 days to avoid the accrual of additional interest.
If you have any questions, please contact ******in the Office of Tax Policy at ******** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12267T
Rulings of the Tax Commissioner