Tax Type
Retail Sales and Use Tax
Description
Construction; Restaurant fixtures not realty and subject to tax
Topic
Taxability of Persons and Transactions
Date Issued
01-30-1997
January 30, 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 May 1993 through November 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates five restaurants in Virginia. As a result of an audit, the Taxpayer was assessed tax on the untaxed purchases of seating booths, cabinets, and bars for use in its operation. The Taxpayer contracted for the fabrication and installation of the above mentioned items. The Taxpayer maintains that the items became realty upon installation and therefore, the contractor is liable for the tax as provided in Virginia Regulation (VR) 630-10-27.
DETERMINATION
In determining whether tangible personal property placed upon realty becomes realty or remains personalty, the department has consistently relied upon the three general tests set out by the Virginia Supreme Court in Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970). The primary tests applied to the determination are: (1) annexation of the property to the realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties. The intention of the party making the annexation is the chief test to be considered.
A review of the lease agreement states that the Taxpayer has the right to install "fixtures" in the premises provided such installation does not damage the real property. The lease further provides that the "fixtures" shall remain the property of the Taxpayer and shall be removed by the Taxpayer at the end of the lease term. Further, an on-site examination determined that the seating booths, tables and bar did not become realty upon installation. These items were screwed in the wall or in the floor in a manner as to be removed without damage to the realty. From the information provided, it appears that the items purchased and affixed to the realty are not intended to be permanent and thus remain tangible personal property.
VR 630-10-37 (copy enclosed) defines "fabrication" as any operation which changes the form or state of tangible personal property. A fabricator who fabricates tangible personal property for sale at retail must collect the tax on the total charge for the fabrication of tangible personal property. The facts in this case indicate that the contractor fabricated materials used as seating booths, cabinets, and a bar in the Taxpayer's restaurant which did not become part of the real property. Because no tax was paid to the company performing the fabrication operation, the auditor properly assessed the Taxpayer for the tax on its purchases of the seating booths, cabinets and bars.
Based upon the foregoing, l do not find basis for an adjustment to the audit. The assessment is correct as issued. The Taxpayer will shortly receive an updated bill with interest accrued through the date of this letter. The bill should be paid within 30 days to avoid the accrual of additional interest.
If you have any questions regarding this letter, please contact *********of the department's Office of Tax Policy at****************
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10902T
Rulings of the Tax Commissioner