Tax Type
Retail Sales and Use Tax
Description
Delivery charges and packing costs; Transportation charges
Topic
Basis of Tax
Date Issued
06-26-1997
June 26, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****************
This is in reply to your letter in which you request a ruling on the application of the sales and use tax to your client, the "Taxpayer," regarding the out-of-state manufacture of custom millwork for installation in Virginia. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is an out-of-state manufacturer of raised hardwood panel walls, doors, window and door frames and trim, moldings, built-in cabinets and shelves, and built-in reception desks for installation with respect to real property within and without Virginia. In addition, the Taxpayer produces and sells movable desks, credenzas, and conference tables. These items are not mass produced and held in inventory, but custom produced per order. In most instances, these furnishings are provided by the Taxpayer in connection with its real property contracts; however, on occasion such items are sold independent of real property contracts.
The Taxpayer purchases raw materials from various suppliers within and without Virginia for use in production at their out-of-state manufacturing operations. At the time of purchase, the Taxpayer is unable to determine the ultimate use of such materials. On behalf of the Taxpayer, you ask specific questions regarding the application of the Virginia sales tax to fabricated property brought into Virginia for use primarily in the performance of real property contracts.
RULING
While you have requested a response to specific questions, I have determined it appropriate to respond to the issues raised by your questions
Contractor/Retailer
Code of Virginia § 58.1-610 sets forth the general rule regarding the application of the sales and use tax to contractors and provides that "[a]ny person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption."
When the Taxpayer contracts to furnish and install tangible personal property with respect to real property in Virginia, it is deemed a using and consuming contractor and would be subject to the tax on raw materials used in manufacturing such tangible personal property. The Taxpayer, however, is deemed a retailer when it sells movable desks, credenzas, and conference tables independent of a real property contract.
Application of the Tax
Use Tax
Upon transport or products into Virginia for use in the performance of real property construction contracts, the Taxpayer incurs the tax in accordance with Code of Virginia § 58.1--604, which imposes the use tax upon the use or consumption of tangible personal property in the Commonwealth. In accordance with Code of Virginia § 58.1-604, the Taxpayer must remit the tax on the cost price of raw materials used to manufacture the products furnished and installed by the Taxpayer in connection with real property contracts in Virginia. The Taxpayer must accrue and remit tax directly to the department on Form ST-9, Retail Sales and Use Tax Return, under the category Personal Use.
Retail Sales Tax
The Taxpayer is considered a retailer with respect to sales of movable desks, credenzas, and conference tables when such sales are independent of a real property construction contract. The Taxpayer must charge the tax on the sales price of such items to Virginia customers. Sales price is defined in Code of Virginia § 58.1-602 as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale...without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever”. The Taxpayer must collect and remit such tax also using Form ST-9.
Credit for Taxes Paid
You question whether the Taxpayer would be entitled to a credit against Virginia sales and use taxes for sales taxes paid to the Taxpayer's home state on the purchase of raw materials used in the manufacture of products installed in real property in Virginia.
Code of Virginia § 58.1-611 provides that a "credit shall be granted against the taxes imposed by this chapter with respect to a person's use in this Commonwealth of tangible personal property purchased by him in another state”. Based on the statute, the Taxpayer would be entitled to a credit for the tax paid to its home state on the purchase of raw materials used in manufacturing products used in Virginia. The credit would be allowed for an amount not to exceed the amount of the Virginia tax. The credit would not apply to tax erroneously charged or incorrectly paid to another state.
Raw Material Purchases in Virginia
The Taxpayer purchases raw materials from Virginia vendors for delivery to its out-of-state manufacturing facility. At the time of purchase, the Taxpayer does not know whether the materials will be used to manufacture products for installation in real property in Virginia or for sale to Virginia customers. Because there is no use of the raw materials in Virginia and the Taxpayer takes title to and possession of the property outside Virginia, the purchases constitute transactions occurring in interstate commerce. The purchase of raw materials under such conditions would be shielded from the imposition of the tax under the interstate commerce exemption. See Code of Virginia § 58.1 -609.10(4) and 23 VAC 10-210-780. Raw materials used in the production of tangible personal property which is incorporated into real property in Virginia will be subject to the use tax as provided above.
Separately Stated Charges
You question the taxability of separately stated installation, set-up, and transportation charges in connection with products furnished in connection with real property contracts and sold at retail to Virginia customers.
Code of Virginia § 58.1-609.5(2) provides an exemption from the sales and use tax for "[a]n amount separately charged for labor or services rendered in installation, applying, remodeling or repairing property sold”. Charges by the Taxpayer for installation of products in Virginia are not subject to the tax when separately stated on the invoice.
The set-up charges in this case are associated with products transported to the job site in component parts for installation in real property. Set-up charges also apply to the assembly of movable desks, credenzas, and conference tables. When the set-up charge is in connection with the installation of products regarding real property contracts, the charge constitutes a nontaxable installation charge. A set-up charge in connection with the retail sale of movable desks, credenzas, and conference tables is considered a service in connection with the sale of tangible personal property and is subject to the sales tax under the definition of sales price.
Code of Virginia § 58.1-609.5(3) provides an exemption from the sales and use tax for "[t]ransportation charges separately stated”. Title 23 VAC 10-210-6000 further explains that the tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. Where the use tax is applicable, separately stated transportation charges from suppliers to the Taxpayer, commonly known as transportation-out, are exempt and not included in the computation of cost price.
The policy set forth in this ruling is based on the specific facts presented. If the facts should change in any manner, the Taxpayer is advised to seek another ruling from the department. I am enclosing the cited statutes, regulations and a Combined Registration Application, Form R-1 with instructions. If you have additional questions or need further assistance, you may contact **** at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11536J
Rulings of the Tax Commissioner