Retail Sales and Use Tax
Taxability of Persons and Transactions
February 18, 1997
Re: § 58.1-1821 Application: Retail Sales & Use Tax
This is in reply to your letter in which you seek a correction of the department's assessment issued to ********* (the "Taxpayer"), for the period September 1992 through June 1994. I note that the department's assessment has been paid in full.
The Taxpayer entered into a contract with the federal government providing hardware maintenance services for personal computers, and associated local area computer network (LAN) equipment. The contract states that the Taxpayer shall provide on-site preventive and general maintenance, on-call and per-call troubleshooting, and problem solving services to several federal offices.
In a response (P.D. 96-40, April 5, 1996) to the Taxpayer's previous protest, the department held that the true object of the contract was for services and that the Taxpayer was the consumer of all tangible personal property used in performing such services.
The Taxpayer now states that it was a designated purchasing agent for the federal government. Accordingly, the Taxpayer has paid the assessment under protest, stating that tax should not have been assessed on the purchases of equipment.
Subdivision 4 of Code of Virginia § 58.1-609.1 provides an exemption from the sales and use tax for "[t]angible personal property purchased for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States." Virginia Regulation (VR) 630-10-27(J) provides that this exemption is available only when the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental agency.
There is no evidence within the contract that the Taxpayer was officially designated as the purchasing agent for the governmental agency. Based on a review of the contract and supporting amendments, I note that the contract specifically stated that the government agreed to reimburse the contractor (Taxpayer). Accordingly, I cannot agree that the Taxpayer is a designated purchasing agent for the federal government. I have enclosed copies of previous rulings, P.D.'s 91-247 (10/08/91), and 96-155 (06/27/96), which further details the department's position. Unfortunately, there is no basis to allow for any adjustment to the department's audit.
If you should have additional any questions regarding this matter, please contact ******of the department's Office of Tax Policy at ********.
Danny M. Payne