Tax Type
Retail Sales and Use Tax
Description
Government transactions; Purchases on behalf of government
Topic
Taxability of Persons and Transactions
Date Issued
09-16-1997
September 16, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
This is in reply to your letter of May 22, 1997, in which you request a ruling on the application of the retail sales and use tax to a specific contract between your client (the "Taxpayer") and a state agency of the Commonwealth of Virginia.
FACTS
The Taxpayer has been engaged to implement a complete computer-based Traffic Signal Management System. The system will consist of a digital, computer based, networked, central system providing direct communications with all intersections in the project area. The system will perform information management, analysis, and reporting of data, inventory control, maintenance logging, and real-time graphics display of intersection operations.
The Taxpayer is responsible for furnishing and integrating the complete computerized system, including the design and construction of the control room, all necessary communications equipment not provided by the local telephone company, central computers and peripherals, software, and other incidentals required for the proper operation of the Traffic Signal Management System. The Taxpayer will also provide systems documentation and end-user training and support.
You request a ruling regarding the sales and use tax treatment of equipment and related materials purchased as part of the contract, which will become the property of the Virginia state agency upon completion of the Traffic Signal Management System.
RULING
The department has previously ruled that in considering the tax treatment of government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. If a contract is for the sale of tangible personal property, the contractor may purchase articles under resale certificates of exemption. The subsequent sale of the property to a Virginia state agency is exempt from the tax under Code of Virginia § 58.1-609.1(4). If the contract is for the provision of services and in connection with those services tangible personal property is provided, the contractor is deemed to be the taxable user or consumer of the tangible personal property and must pay the tax on the purchases.
Based on the facts provided in your letter, it appears that the contract at issue is for the sale of tangible personal property. While the Taxpayer is contractually required to perform various services, such as system integration, end-user training, and support services, the purpose of the contract is for the provision of a fully operational and automated Traffic Signal Management System. The Taxpayer will not operate or manage the system, and the services described are provided as part of the sale of the system. Accordingly, tangible personal property purchased by the Taxpayer, the title to which passes to the Commonwealth, may be purchased exempt from Virginia sales tax using resale exemption certificates. The subsequent sale of the system is also exempt under Code of Virginia § 58.1-609.1(4).
Please note that the Taxpayer is the taxable user and consumer of all supplies and equipment used in connection with the contract for which title does not pass to the Commonwealth (e.g., supplies used in the design of the system).
This ruling is limited to the facts as presented in your letter. If the facts or scope of work of the contract should change or differ from that as outlined in your letter, the application of the tax may change.
If you have any questions regarding this ruling, you may contact ****** of the department's Office of Tax Policy at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12577F
Rulings of the Tax Commissioner