Tax Type
Retail Sales and Use Tax
Description
Construction; Kitchen equipment supplier.
Topic
Taxability of Persons and Transactions
Date Issued
02-24-1998
February 24, 1998
Dear**********:
In your letter of November 19, 1997, you seek correction of the sales and use tax assessment issued to ***** (Taxpayer) as a result of an audit.
FACTS
The Taxpayer is a general contractor. An audit for the period February 1993 through January 1996 resulted in an assessment of use tax on untaxed purchases used or consumed in the performance of its real property construction services.
The Taxpayer takes exception to the use tax assessed on kitchen equipment furnished by an out-of-state company (Company) in connection with the Taxpayer's construction contract with a Virginia college. The Taxpayer maintains that the Company had been engaged as a subcontractor to furnish and install the kitchen equipment at issue. As such, the Taxpayer maintains that the Company is the final user or consumer of such equipment and is therefore ultimately liable for the tax, not the Taxpayer.
The Taxpayer contends that the Company does not fit the definition of "retailer' as set out under Title 23 of the Virginia Administrative Code (VAC) 10-210-410(G). According to the Taxpayer, the Company does not operate a wholesale or retail place of business and does not maintain an inventory of kitchen equipment. Accordingly, the Taxpayer maintains that the Company is a contractor, rather than a retailer, of kitchen equipment.
DETERMINATION
Generally, real estate contractors must comply with Code of Virginia Sec. 58.1-610(A) which sets out the following rule:
For purposes of the above exception to the general contractor rule, a retailer is defined in 23 VAC 10-210-410(G) as "[a]ny person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of the aforementioned items, and who performs installation as part of or incidental to the sale of the aforementioned items.' Accordingly, the only persons who would be treated as a contractor of the classes of products enumerated above would be those persons who do not maintain a place of business, or an inventory of the above enumerated products or materials therefor or component parts thereof, or who perform installation only (i.e., installation that is not incidental to the sale of the product).
Inventory. The regulation requires the existence of an inventory, such as kitchen equipment or the materials which enter into or become a component part of such items. It is my understanding that the Company orders kitchen equipment from its suppliers after entering into a contract with a customer and has the equipment shipped to its warehouse for temporary storage until ready for deliver to and installation at the jobsite. As the Company does not sell kitchen equipment, or the materials or component parts thereof, from an inventory, I find that the Company does not maintain an inventory as contemplated under 23 VAC 10-210-410(G).
As the Company does not satisfy the inventory element of the retailer definition, and therefore does not meet all three criteria of the retailer definition, it cannot be classified as a retailer for purposes of this regulation. In these instances, the regulation also provides that:
It is my understanding that the contested assessment ***** only pertains to the kitchen equipment issue. Accordingly, such assessment will be abated in full.
If you have any questions about this determination, please contact ***** of my policy staff at *****.
Dear**********:
In your letter of November 19, 1997, you seek correction of the sales and use tax assessment issued to ***** (Taxpayer) as a result of an audit.
FACTS
The Taxpayer is a general contractor. An audit for the period February 1993 through January 1996 resulted in an assessment of use tax on untaxed purchases used or consumed in the performance of its real property construction services.
The Taxpayer takes exception to the use tax assessed on kitchen equipment furnished by an out-of-state company (Company) in connection with the Taxpayer's construction contract with a Virginia college. The Taxpayer maintains that the Company had been engaged as a subcontractor to furnish and install the kitchen equipment at issue. As such, the Taxpayer maintains that the Company is the final user or consumer of such equipment and is therefore ultimately liable for the tax, not the Taxpayer.
The Taxpayer contends that the Company does not fit the definition of "retailer' as set out under Title 23 of the Virginia Administrative Code (VAC) 10-210-410(G). According to the Taxpayer, the Company does not operate a wholesale or retail place of business and does not maintain an inventory of kitchen equipment. Accordingly, the Taxpayer maintains that the Company is a contractor, rather than a retailer, of kitchen equipment.
DETERMINATION
Generally, 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. . . .
- 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. . . .
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- Any person selling fences, venetian blinds, window shades, awnings, storm windows and doors, locks and locking devices, floor coverings (as distinguished from the floors themselves), cabinets, kitchen equipment, window air conditioning units 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. (Emphasis added.)
For purposes of the above exception to the general contractor rule, a retailer is defined in 23 VAC 10-210-410(G) as "[a]ny person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of the aforementioned items, and who performs installation as part of or incidental to the sale of the aforementioned items.' Accordingly, the only persons who would be treated as a contractor of the classes of products enumerated above would be those persons who do not maintain a place of business, or an inventory of the above enumerated products or materials therefor or component parts thereof, or who perform installation only (i.e., installation that is not incidental to the sale of the product).
Inventory. The regulation requires the existence of an inventory, such as kitchen equipment or the materials which enter into or become a component part of such items. It is my understanding that the Company orders kitchen equipment from its suppliers after entering into a contract with a customer and has the equipment shipped to its warehouse for temporary storage until ready for deliver to and installation at the jobsite. As the Company does not sell kitchen equipment, or the materials or component parts thereof, from an inventory, I find that the Company does not maintain an inventory as contemplated under 23 VAC 10-210-410(G).
As the Company does not satisfy the inventory element of the retailer definition, and therefore does not meet all three criteria of the retailer definition, it cannot be classified as a retailer for purposes of this regulation. In these instances, the regulation also provides that:
-
- Persons who are not classified as retailers within the definition set forth above and who sell and install fences, venetian blinds, etc., are deemed to be contractors and must pay the sales tax on such items at the time of purchase.
- Persons who are not classified as retailers within the definition set forth above and who sell and install fences, venetian blinds, etc., are deemed to be contractors and must pay the sales tax on such items at the time of purchase.
It is my understanding that the contested assessment ***** only pertains to the kitchen equipment issue. Accordingly, such assessment will be abated in full.
If you have any questions about this determination, please contact ***** of my policy staff at *****.
Rulings of the Tax Commissioner