Tax Type
Retail Sales and Use Tax
Description
Construction; Contractor's purchases for exempt organization.
Topic
Taxability of Persons and Transactions
Date Issued
12-19-1997
December 19, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
It is my understanding that you seek correction of the use tax assessment issued to ********(the Taxpayer) as a result of an audit.
FACTS
The Taxpayer is a contractor engaged in constructing and installing picnic shelters and playground equipment in parks and school yards. An audit for the period May 1990 through March 1996 resulted in an assessment of use tax for untaxed purchases used or consumed by the Taxpayer in its construction services.
The Taxpayer takes exception to the entire use tax assessment. The Taxpayer maintains that it was informed by its customers who are local governments of Virginia that they were exempt from any taxes imposed by the state of Virginia and the federal government. Furthermore, the Taxpayer claims that it was unaware that it was ultimately liable for the sales and use tax in its real property service contracts.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-410, copy enclosed, clearly sets forth that every person or business who performs real property construction, reconstruction, installation, repair and similar contracts is treated as the ultimate user or consumer of all tangible personal property purchased or leased in connection with such real property contracts. A real property construction contractor does not pass the sales or use tax on to anyone else as a tax but should take the amount of tax owed on materials, etc., into consideration when submitting bids for a particular job.
Furthermore, no sale to a contractor is exempt on the grounds that the other party to the contract is a governmental agency, a public service corporation, a nonprofit or public school, or a nonprofit hospital, or on the grounds that the contract is a cost-plus contract. However, when the property is purchased and furnished to a contractor by an agency or unit of the federal government, Commonwealth of Virginia, or a local subdivision of Virginia, the contractor would owe no sales or use tax on such property.
In this case, there is no evidence that any of the local government agencies purchased and furnished the items at issue to the Taxpayer. Rather, it is my understanding that the Taxpayer purchased and furnished the items at issue in connection with its real property construction services. Consequently, the Taxpayer is ultimately liable for the tax on such purchases.
I would also note that the above cited regulation has been in effect in substantially its present form since 1985. It is also published in the comprehensive set of regulations entitled the Virginia Retail Sales and Use Tax Regulations (now the Virginia Administrative Code) which have always been freely available to the public. I would further note that this regulation is based on longstanding law, specifically Code of Virginia § 58.1-610, copy enclosed. This law has been substantially unchanged since the original inception of the Virginia Retail Sales and Use Tax Act in 1966. Accordingly, the department's written policy on the application of the tax for real property service contractors is longstanding, consistently applied, and distributed freely to the public.
Based on our review of the issues in this case, there is no statutory basis to revise any part of the assessment. Accordingly, the assessment is correct as issued. Furthermore, based on all of the financial statements presented, I find no basis to revoke the recent denial of your offer in compromise.
If the Taxpayer is unable to pay the outstanding balance of****(interest has been accrued to present) within the next 30 days, it may request an installment plan of payment from the department by contacting *****, Collections Supervisor of the department's **** District Office, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13231R
Rulings of the Tax Commissioner