Tax Type
Retail Sales and Use Tax
Description
Real property construction; Government contractors
Topic
Taxability of Persons and Transactions
Date Issued
08-08-1997
August 18, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter in which you seek correction of sales and use tax assessed to ********(the Taxpayer) for the period January 1993 through December 1996.
FACTS
The Taxpayer is in the business of selling vehicle access control systems such as traffic barriers, gate controls, and fabricated guard houses. The Taxpayer may also contract to install such systems. The department's audit disclosed that the Taxpayer entered into a contract to install vehicle control systems in Virginia for the United States Government. The department's auditor considered the Taxpayer a real property contractor and assessed the tax on materials delivered to Virginia for use in such real property contract. Also assessed in the audit are certain untaxed sales.
The Taxpayer disagrees with the assessment of the tax on materials shipped to Virginia for use in a real property contract for the federal government. The Taxpayer is of the opinion that the contract qualifies as an exempt sale to a government entity.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC)10-210-410(J) explains the application of the sales and use tax to government contracts as follows:
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- Generally, purchases of tangible personal property by contractors in connection with real property construction contracts with the governments of Virginia or the United States or political subdivisions thereof, are sales to such contractors for their own use or consumption and contractors are subject to the tax on such transactions... Only instances where the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental entity will such purchases be deemed exempt from the tax.
As provided in 23 VAC 10-210-410 subsection A, "no sale to a contractor is exempt on the ground that the other party to the contract is a governmental agency...." Thus, contractors must pay the tax on items at the time of purchase or remit the use tax on any tangible personal property purchased exclusive of the tax.
Based on a review of the audit, the Taxpayer entered into a contract with a government agency located in Virginia to furnish and install active barriers and vehicle control systems which become real property upon installation. The Taxpayer purchased the materials in California and shipped them directly to the job site in Virginia. The fact that the contract required the Taxpayer to furnish, deliver, and install the systems renders the Taxpayer a real property contractor. See Public Documents (P.D.) 97-67 (2/14/97) and 88-197 (7/6/88), copies enclosed. As provided above, a contractor is the user and consumer of all tangible personal property used in real property construction and must pay the tax on all such property. Based on these findings, the auditor properly assessed the tax.
In addition to this appeal, the Taxpayer requests additional information regarding nexus requirements, collection responsibilities of dealers, and rules governing the delivery of materials in Virginia for use in real property construction outside Virginia. I have enclosed the regulation and several P.D.'s addressing these issues.
The Taxpayer will receive a revised Notice of Assessment with updated interest. The Taxpayer should pay the bill within 30 days to avoid accrual of additional interest. If you have any further questions regarding this letter, you may contact ******** in the Office of Tax Policy at**********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12595T
Rulings of the Tax Commissioner