Tax Type
Retail Sales and Use Tax
Description
Construction; Contract to install counter, cabinets, and wall panels
Topic
Taxability of Persons and Transactions
Date Issued
09-25-1997
September 25, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will reply to your letter in which you seek correction of an assessment issued to ********(the "Taxpayer") for the period April 1995 through August 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is an ice cream parlor that was audited and assessed use tax on various purchases. The Taxpayer disagrees with the assessment of use tax on the price of a contract to fabricate and install store counters, cabinets, wall panels, and similar items. The Taxpayer also contests the assessment of tax on the purchase of a menu board.
DETERMINATION
The Taxpayer maintains that the items sold under the contract became part of real property upon installation and the liability for the tax rests with the seller who was acting as a real property contractor. The Taxpayer states that the lease agreement for the store prohibits the removal of any improvements from the premises when the lease is terminated to support its contention that the purchases become part of real property.
The auditor held the contract price less the delivery charges taxable based on Title 23 of the Virginia Administrative Code (VAC) 10-210-410(D) which states that "where the supplier is not authorized to collect the tax or fails to collect the tax, the tax must be remitted directly to the Department of Taxation ...." Because the contractor was from another state and was not registered for sales or use tax in Virginia, the auditor treated the Taxpayer as the user or consumer of the tangible personal property provided under the contract based on the language in VAC 10-210-410(D) cited above. However, this regulation applies to contractors who fabricate tangible personal property for use in the performance of real property contracts. There is no basis under this regulation to hold the Taxpayer liable for use tax on the cost of the contract work.
The auditor agrees that many of the items furnished under the contract became real property after installation, although some items remained tangible property after installation. The department recently issued P. D. 97-289 (6/26/97, copy enclosed) which addresses the application of sales and use tax to real estate construction contracts that include the provision of tangible personal property which does not become part of the real property. The department agreed that when such property is sold as part of a real property contract, the cost of the property that remains tangible is treated as property used and consumed by the contractor. The contractor is liable for the sales or use tax on the property. When tangible personal property is sold independent of a real property contract, it is considered a retail sale. Based on the above, l find that the assessment on the cost of the contract was erroneous and the audit will be adjusted accordingly.
The Taxpayer also maintains that it purchased a menu board which became part of real property upon installation. The Taxpayer has not provided sufficient information about this transaction to determine its tax treatment. If the Taxpayer purchased the menu board and either installed it or paid someone to install it, the Taxpayer is considered the taxable user or consumer of the property. If the menu board was furnished and installed by a contractor, the contractor is responsible for payment of sales or use tax on the menu board. I will allow the Taxpayer sixty days to provide additional documentation on the purchase of the menu board. If no information is received from the Taxpayer, l must consider this portion of the assessment correct.
The audit will be revised in accordance with my determination and a corrected notice of assessment sent to the Taxpayer. If you have any questions, please contact ******** at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
Enclosure (1)
OTP/11873S
Rulings of the Tax Commissioner