Tax Type
Retail Sales and Use Tax
Description
Interstate transactions; Property held for delivery out-of-state.
Topic
Taxability of Persons and Transactions
Date Issued
02-20-1998
February 20, 1998
Dear***********:
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer'), for the period September 1994 through August 1997.
FACTS
The Taxpayer is in the water management business. The Taxpayer contracts with clients to develop and implement water management programs. To implement a water management program, the Taxpayer may replace plumbing fixtures such as commodes and shower heads with fixtures that use less water. The Taxpayer may also repair or add parts to faulty or inefficient plumbing systems to decrease the system's water consumption.
The Taxpayer was audited and treated as a real property contractor in the audit. Use tax was assessed on tangible personal property purchased and stored at a Virginia location but subsequently used on jobs in other states. The Taxpayer maintains that it is a retailer and not a contractor, and for this reason, the charges for property used on jobs in other states represent exempt sales in interstate commerce.
DETERMINATION
Code of Virginia Sec. 58.1-610 states that "[a]ny 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.' The Taxpayer maintains that it does not contract to perform any of the activities contained in the statute above. Rather, the Taxpayer contracts to develop and implement water management programs which may involve repairs to and the replacement of parts in plumbing systems. The Taxpayer feels that the interstate commerce exemption found in Code of Virginia Sec. 58.1-609.10(4) applies to its use of tangible personal property in states outside of Virginia.
Based on the information provided, the Taxpayer is a contractor with respect to real property. The Taxpayer provides tangible personal property and services in connection with the repair of plumbing systems and installs parts and fixtures which become a permanent part of its clients' plumbing systems. The Taxpayer is clearly a contractor as defined in the statute cited above.
Code of Virginia Sec. 58.1-609.10(4) (copy enclosed) provides a sales and use tax exemption for the "[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth.' "Use' is defined in Code of Virginia Sec. 58.1-602 (copy enclosed) as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business.'
The use tax was assessed on property that the Taxpayer took delivery of in Virginia. The Taxpayer exercised use over the property by storing the property in a Virginia warehouse. Because the property was delivered to Virginia and use of the property occurred here, the interstate commerce exemption does not apply to the Taxpayer's purchase of the property. Thus, even if the Taxpayer intends to deliver the property to a location outside the state, this fact does not preclude the imposition of the sales and use tax on the property when held in Virginia prior to delivery outside the state. This position is supported by the opinion of the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980). In this case, the court ruled that "if a taxable event occurs in Virginia, subsequent delivery of property outside this State does not immunize the taxable event.'
The Taxpayer also notes that it contacted the department in 1995 and was instructed by a customer service representative to pay use tax to the state in which materials were delivered. If the department determines that the Taxpayer is a contractor, the Taxpayer asks that, based on the erroneous advice received from the department, the department waive the assessment in return for the Taxpayer's prospective compliance with the department's determination.
While I am sympathetic with the Taxpayer's situation, I am unable to waive the assessment. The Taxpayer has not provided evidence that it relied on the department's advice to handle the contested transactions in the manner that it did. I also understand that the Taxpayer has applied to the state of Maryland for a refund of the tax paid erroneously to that state. I will consider adjusting the audit if the Taxpayer provides written evidence that the department instructed it to pay sales and use tax in the manner that generated this audit assessment.
This documentation may be provided within sixty days to ***** in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. I understand that the Taxpayer has established an installment payment plan with the department to pay its liability. If the Taxpayer is unable to provide the requested documentation, it should continue to make payments under the terms of the payment plan. If you have any questions, please contact ***** at *****.
Dear***********:
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer'), for the period September 1994 through August 1997.
FACTS
The Taxpayer is in the water management business. The Taxpayer contracts with clients to develop and implement water management programs. To implement a water management program, the Taxpayer may replace plumbing fixtures such as commodes and shower heads with fixtures that use less water. The Taxpayer may also repair or add parts to faulty or inefficient plumbing systems to decrease the system's water consumption.
The Taxpayer was audited and treated as a real property contractor in the audit. Use tax was assessed on tangible personal property purchased and stored at a Virginia location but subsequently used on jobs in other states. The Taxpayer maintains that it is a retailer and not a contractor, and for this reason, the charges for property used on jobs in other states represent exempt sales in interstate commerce.
DETERMINATION
Code of Virginia Sec. 58.1-610 states that "[a]ny 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.' The Taxpayer maintains that it does not contract to perform any of the activities contained in the statute above. Rather, the Taxpayer contracts to develop and implement water management programs which may involve repairs to and the replacement of parts in plumbing systems. The Taxpayer feels that the interstate commerce exemption found in Code of Virginia Sec. 58.1-609.10(4) applies to its use of tangible personal property in states outside of Virginia.
Based on the information provided, the Taxpayer is a contractor with respect to real property. The Taxpayer provides tangible personal property and services in connection with the repair of plumbing systems and installs parts and fixtures which become a permanent part of its clients' plumbing systems. The Taxpayer is clearly a contractor as defined in the statute cited above.
Code of Virginia Sec. 58.1-609.10(4) (copy enclosed) provides a sales and use tax exemption for the "[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth.' "Use' is defined in Code of Virginia Sec. 58.1-602 (copy enclosed) as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business.'
The use tax was assessed on property that the Taxpayer took delivery of in Virginia. The Taxpayer exercised use over the property by storing the property in a Virginia warehouse. Because the property was delivered to Virginia and use of the property occurred here, the interstate commerce exemption does not apply to the Taxpayer's purchase of the property. Thus, even if the Taxpayer intends to deliver the property to a location outside the state, this fact does not preclude the imposition of the sales and use tax on the property when held in Virginia prior to delivery outside the state. This position is supported by the opinion of the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980). In this case, the court ruled that "if a taxable event occurs in Virginia, subsequent delivery of property outside this State does not immunize the taxable event.'
The Taxpayer also notes that it contacted the department in 1995 and was instructed by a customer service representative to pay use tax to the state in which materials were delivered. If the department determines that the Taxpayer is a contractor, the Taxpayer asks that, based on the erroneous advice received from the department, the department waive the assessment in return for the Taxpayer's prospective compliance with the department's determination.
While I am sympathetic with the Taxpayer's situation, I am unable to waive the assessment. The Taxpayer has not provided evidence that it relied on the department's advice to handle the contested transactions in the manner that it did. I also understand that the Taxpayer has applied to the state of Maryland for a refund of the tax paid erroneously to that state. I will consider adjusting the audit if the Taxpayer provides written evidence that the department instructed it to pay sales and use tax in the manner that generated this audit assessment.
This documentation may be provided within sixty days to ***** in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. I understand that the Taxpayer has established an installment payment plan with the department to pay its liability. If the Taxpayer is unable to provide the requested documentation, it should continue to make payments under the terms of the payment plan. If you have any questions, please contact ***** at *****.
Rulings of the Tax Commissioner