Tax Type
Retail Sales and Use Tax
Description
Construction; Seller of kitchen equipment.
Topic
Taxability of Persons and Transactions
Date Issued
02-11-1998
February 11, 1998
Dear***:
In your letter of January 9, 1998, you seek correction of the retail sales and use tax assessment issued to ***** (the Taxpayer) as a result of an audit. Copies of all references are enclosed.
FACTS
The Taxpayer sells and installs restaurant kitchen equipment. The Taxpayer is located outside of Virginia and has been registered with the Virginia Department of Taxation since April 1986 to charge and collect the Virginia retail use tax on sales of tangible personal property made to Virginia customers. An audit for the period January 1994 through December 1996 resulted in an assessment of sales tax on untaxed sales of kitchen equipment.
The Taxpayer takes exception to the entire sales tax assessment. The Taxpayer maintains that it is a real property contractor with respect to its sales and should therefore be deemed the taxable user or consumer of the tangible items furnished under the contract. The Taxpayer has previously paid sales tax on the cost price of most of its purchases of kitchen equipment transferred under sales contracts with customers but no tax was paid on the markup applied to these purchases. Accordingly, most of the sales tax assessed in the audit is based on the untaxed markup applied to the kitchen equipment sold and installed by the Taxpayer.
DETERMINATION
Generally
In general, real estate contractors must comply with Code of Virginia Sec. 58.1-610(A) which sets out the following rule:
However, Code of Virginia Sec. 58.1-610(D) provides an exception to the above general contractor rule and states that:
However, this regulation also provides that ``[p]ersons who are not classified as retailers within the definition set forth above and who sell and install ... [kitchen equipment] ... are deemed to be contractors and must pay the sales tax on such items at the time of purchase.' Accordingly, the only persons who would be treated as a contractor of kitchen equipment would be those persons who do not maintain a place of business, or an inventory of kitchen equipment (or materials or component parts of such equipment), or who perform installation only (i.e., installation that is not incidental to the sale of kitchen equipment).
Inventory
When a contract is awarded, it is my understanding that the Taxpayer purchases the kitchen equipment and temporarily stores it at a warehouse until it is ready to be delivered to the jobsite and installed. Based on the information provided, the Taxpayer does not maintain and sell from an inventory of kitchen equipment. As such, I find that the Taxpayer does not meet the inventory requirement of the ``retailer' definition set forth in 23 VAC 10-210-410(G) and, therefore, is not classified as a retailer for purposes of this regulation when it sells and installs kitchen equipment pursuant to the contracts at issue.
Based on the facts presented, the Taxpayer is classified as a using and consuming contractor of kitchen equipment for the contracts at issue and properly paid tax on the cost price of the kitchen equipment it purchased.
Conclusion
Based on the foregoing, I find basis for removing the sales tax assessed on the markups included in the audit. However, the Taxpayer is liable for the tax on the cost price of the untaxed kitchen equipment included in the audit. After this adjustment, the sales tax compliance ratio will be recomputed. If the revised sales tax compliance ratio meets or exceeds 85%, the penalty will be waived in its entirety.
The audit will be revised in accordance with this determination. Upon completion of the revision, the Taxpayer will receive a revised assessment and a revised audit report.
If you have any questions about this determination, please contact ***** of the department's Office of Tax Policy at *****.
Dear***:
In your letter of January 9, 1998, you seek correction of the retail sales and use tax assessment issued to ***** (the Taxpayer) as a result of an audit. Copies of all references are enclosed.
FACTS
The Taxpayer sells and installs restaurant kitchen equipment. The Taxpayer is located outside of Virginia and has been registered with the Virginia Department of Taxation since April 1986 to charge and collect the Virginia retail use tax on sales of tangible personal property made to Virginia customers. An audit for the period January 1994 through December 1996 resulted in an assessment of sales tax on untaxed sales of kitchen equipment.
The Taxpayer takes exception to the entire sales tax assessment. The Taxpayer maintains that it is a real property contractor with respect to its sales and should therefore be deemed the taxable user or consumer of the tangible items furnished under the contract. The Taxpayer has previously paid sales tax on the cost price of most of its purchases of kitchen equipment transferred under sales contracts with customers but no tax was paid on the markup applied to these purchases. Accordingly, most of the sales tax assessed in the audit is based on the untaxed markup applied to the kitchen equipment sold and installed by the Taxpayer.
DETERMINATION
Generally
In general, real estate contractors must comply with Code of Virginia Sec. 58.1-610(A) which sets out the following rule:
-
- Any person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption. Any sale, distribution, or lease to or storage for such person shall be deemed a sale, distribution, or lease to or storage for the ultimate consumer and not for resale....
However, Code of Virginia Sec. 58.1-610(D) provides an exception to the above general contractor rule and states that:
-
- Any person selling ... kitchen equipment ... or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items.
- Any person selling ... kitchen equipment ... or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items.
However, this regulation also provides that ``[p]ersons who are not classified as retailers within the definition set forth above and who sell and install ... [kitchen equipment] ... are deemed to be contractors and must pay the sales tax on such items at the time of purchase.' Accordingly, the only persons who would be treated as a contractor of kitchen equipment would be those persons who do not maintain a place of business, or an inventory of kitchen equipment (or materials or component parts of such equipment), or who perform installation only (i.e., installation that is not incidental to the sale of kitchen equipment).
Inventory
When a contract is awarded, it is my understanding that the Taxpayer purchases the kitchen equipment and temporarily stores it at a warehouse until it is ready to be delivered to the jobsite and installed. Based on the information provided, the Taxpayer does not maintain and sell from an inventory of kitchen equipment. As such, I find that the Taxpayer does not meet the inventory requirement of the ``retailer' definition set forth in 23 VAC 10-210-410(G) and, therefore, is not classified as a retailer for purposes of this regulation when it sells and installs kitchen equipment pursuant to the contracts at issue.
Based on the facts presented, the Taxpayer is classified as a using and consuming contractor of kitchen equipment for the contracts at issue and properly paid tax on the cost price of the kitchen equipment it purchased.
Conclusion
Based on the foregoing, I find basis for removing the sales tax assessed on the markups included in the audit. However, the Taxpayer is liable for the tax on the cost price of the untaxed kitchen equipment included in the audit. After this adjustment, the sales tax compliance ratio will be recomputed. If the revised sales tax compliance ratio meets or exceeds 85%, the penalty will be waived in its entirety.
The audit will be revised in accordance with this determination. Upon completion of the revision, the Taxpayer will receive a revised assessment and a revised audit report.
If you have any questions about this determination, please contact ***** of the department's Office of Tax Policy at *****.
Rulings of the Tax Commissioner