Tax Type
Retail Sales and Use Tax
Description
Contractor purchases; Direct pay permit furnished by customer
Topic
Collection of Delinquent Tax
Date Issued
10-09-1998
October 9, 1998
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the Taxpayer) for the period February 1994 through January 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer, located outside Virginia, is an electrical contractor. As a result of the department's audit, an assessment was made for certain untaxed purchases for use in a real property construction contract in Virginia.
In this case, the materials were shipped directly to the Virginia job site. The Taxpayer maintains that the materials were purchased for resale and that it received a direct pay permit from the purchaser. The Taxpayer further indicates that it installed the materials for its customer at a later time. The Taxpayer believes the purchaser is responsible for the tax based on its direct pay permit and request that the department abate the tax and interest assessed to the Taxpayer.
DETERMINATION
Code of Virginia § 58.1-610(A) provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. Title 23 of The Virginia Administrative Code (VAC) 10-210-410 further provides that "the law treats every contractor as the user or consumer of all tangible personal property furnished to ***** him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.'
A contractor who enters into a real estate construction contract to furnish and install construction materials does not resell the construction materials. Rather, the contractor is deemed the final user or consumer of the materials which it purchases under its own credit and installs. Accordingly, the contractor is therefore liable for the sales or use tax on such materials.
In this case, the Taxpayer furnished and installed materials, which upon installation, became a part of the realty. Based on 23 VAC 10-210-410, the auditor properly treated the Taxpayer as a contractor with respect to real estate. The Taxpayer is the user and consumer of tangible personal property purchased and used in connection with the real property contract and is required to pay the tax on those purchases.
Code of Virginia § 58.1-624 sets out the provisions for a direct pay permit. Subsection D provides that upon receipt of a direct pay permit number, a dealer is absolved from all duties and liabilities for collection and remittance of the tax with respect to sales, distributions, leases, or storage of tangible personal property to the permit holder. In this case, the Taxpayer is not a dealer making retail sales of tangible personal property, but rather is the user and consumer of the tangible personal property. The direct pay permit number provided by the purchaser does not relieve the Taxpayer from its responsibility to remit the tax on purchases of materials used in connection with the real property contract.
Based on the foregoing, there is not basis for revising the audit. The Taxpayer will receive a revised assessment, with interest accrued to the date of the Taxpayer's letter. The assessment should be paid within 30 days to avoid the accrual of additional interest. If you have any questions regarding this determination, please contact ***** in the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13560T
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the Taxpayer) for the period February 1994 through January 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer, located outside Virginia, is an electrical contractor. As a result of the department's audit, an assessment was made for certain untaxed purchases for use in a real property construction contract in Virginia.
In this case, the materials were shipped directly to the Virginia job site. The Taxpayer maintains that the materials were purchased for resale and that it received a direct pay permit from the purchaser. The Taxpayer further indicates that it installed the materials for its customer at a later time. The Taxpayer believes the purchaser is responsible for the tax based on its direct pay permit and request that the department abate the tax and interest assessed to the Taxpayer.
DETERMINATION
Code of Virginia § 58.1-610(A) provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. Title 23 of The Virginia Administrative Code (VAC) 10-210-410 further provides that "the law treats every contractor as the user or consumer of all tangible personal property furnished to ***** him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.'
A contractor who enters into a real estate construction contract to furnish and install construction materials does not resell the construction materials. Rather, the contractor is deemed the final user or consumer of the materials which it purchases under its own credit and installs. Accordingly, the contractor is therefore liable for the sales or use tax on such materials.
In this case, the Taxpayer furnished and installed materials, which upon installation, became a part of the realty. Based on 23 VAC 10-210-410, the auditor properly treated the Taxpayer as a contractor with respect to real estate. The Taxpayer is the user and consumer of tangible personal property purchased and used in connection with the real property contract and is required to pay the tax on those purchases.
Code of Virginia § 58.1-624 sets out the provisions for a direct pay permit. Subsection D provides that upon receipt of a direct pay permit number, a dealer is absolved from all duties and liabilities for collection and remittance of the tax with respect to sales, distributions, leases, or storage of tangible personal property to the permit holder. In this case, the Taxpayer is not a dealer making retail sales of tangible personal property, but rather is the user and consumer of the tangible personal property. The direct pay permit number provided by the purchaser does not relieve the Taxpayer from its responsibility to remit the tax on purchases of materials used in connection with the real property contract.
Based on the foregoing, there is not basis for revising the audit. The Taxpayer will receive a revised assessment, with interest accrued to the date of the Taxpayer's letter. The assessment should be paid within 30 days to avoid the accrual of additional interest. If you have any questions regarding this determination, please contact ***** in the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13560T
Rulings of the Tax Commissioner