Tax Type
Retail Sales and Use Tax
Description
Government transactions; Purchases by taxpayer for use in government contract taxable.
Topic
Taxability of Persons and Transactions
Date Issued
05-05-1998
May 5, 1998
Dear*************:
This is in response to your letter of April 10, 1998 on behalf of (the "Taxpayer'). At issue is the application of the Virginia retail sales and use tax to purchases made under a specific federal government contract.
FACTS
The Taxpayer has entered into a contract with the ***** (the "Agency') which is an agency of the federal government. Pursuant to the contract's Statement of Work, the Taxpayer is obligated to furnish labor, materials, equipment and supervision at two of the Agency's Virginia facilities. The contract calls for the operation and maintenance of the facilities and includes the following services:
RULING
Government Contractors Generally
The department has traditionally held that in considering the tax treatment of federal government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. The "true object' test described in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 is used to determine whether the contract is for the sale of tangible personal property or for the provision of some service.
If a contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its contractual services, even though title to some or all of the property may pass to the government. Conversely, if a contract is for the sale of tangible personal property, the contractor may purchase such property exempt from the tax for resale. The subsequent sale of the property to the government is exempt under Code of Virginia Sec. 58.1-609.1(4).
Real Property Contractors
As set out in 23 VAC 10-210-410, a real property contractor is defined as any person "who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon. . . .' The law treats every contractor as the taxable user or consumer of tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, or repair.
Furthermore, it makes no difference that purchases of tangible personal property by the contractor are for use in connection with real property contracts with a federal government agency. Such purchases constitute taxable sales to the contractor regardless that title to the property passes directly to the government or if the contractor is reimbursed directly by the government for the cost of the property.
The Instant Case
I have reviewed the contract in the instant case and find that the true object is for the provision of maintenance and repair of real property for the federal government. As such, the Taxpayer is operating in this case as a service provider and is the taxable user or consumer of all tangible personal property it purchases to satisfy its contractual obligations. The Taxpayer must therefor pay the tax to its vendors on these purchases. If the vendor does not collect the tax, the Taxpayer is required to remit the tax directly to the department on a Consumer Use Tax Return, Form ST-7.
Exceptions
As noted above, the Taxpayer is required to pay the tax on all tangible personal property pursuant to its contract with the Agency. The Taxpayer, however, would not be liable for the tax for tangible personal property purchased directly by the federal government and then furnished to the Taxpayer.
Another exception is when the credit of a government entity is bound directly to the purchase of the tangible personal property and a contractor has been officially designated as the purchasing agent for the government entity. This issue is further addressed in the enclosed Public Document 93-20 (2/5/93).
Summary
Based on the information and documents before me, the Taxpayer would not enjoy any exemptions from the tax on its purchases of tangible personal property under this contract. First, the true object of the contract is for provision of services. Also, there is no indication that the credit of the Agency is directly bound to the purchases at issue and that the Taxpayer officially serves as the purchasing agent on behalf of the Agency.
If you or the Taxpayer have any questions about this letter or require additional information from the department, please contact ***** in the department's Office of Tax Policy at *****.
Dear*************:
This is in response to your letter of April 10, 1998 on behalf of (the "Taxpayer'). At issue is the application of the Virginia retail sales and use tax to purchases made under a specific federal government contract.
FACTS
The Taxpayer has entered into a contract with the ***** (the "Agency') which is an agency of the federal government. Pursuant to the contract's Statement of Work, the Taxpayer is obligated to furnish labor, materials, equipment and supervision at two of the Agency's Virginia facilities. The contract calls for the operation and maintenance of the facilities and includes the following services:
-
- Operation, maintenance and repair of mechanical, electrical, and utility systems. This activity includes shutdown and startup of building operating equipment and utilities; calibration and adjustment to a waste water monitoring system; and maintenance and painting of equipment machine rooms.
Structural maintenance and repair, including maintenance and repair of floor, wall and ceiling systems, doors, windows, roadway and parking lot surfaces, roofing systems, and fences and
Removal of asbestos containing material.
- Operation, maintenance and repair of mechanical, electrical, and utility systems. This activity includes shutdown and startup of building operating equipment and utilities; calibration and adjustment to a waste water monitoring system; and maintenance and painting of equipment machine rooms.
-
- Snow and ice removal; and
Maintenance and repair of elevators and escalators.
- Snow and ice removal; and
RULING
Government Contractors Generally
The department has traditionally held that in considering the tax treatment of federal government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. The "true object' test described in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 is used to determine whether the contract is for the sale of tangible personal property or for the provision of some service.
If a contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its contractual services, even though title to some or all of the property may pass to the government. Conversely, if a contract is for the sale of tangible personal property, the contractor may purchase such property exempt from the tax for resale. The subsequent sale of the property to the government is exempt under Code of Virginia Sec. 58.1-609.1(4).
Real Property Contractors
As set out in 23 VAC 10-210-410, a real property contractor is defined as any person "who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon. . . .' The law treats every contractor as the taxable user or consumer of tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, or repair.
Furthermore, it makes no difference that purchases of tangible personal property by the contractor are for use in connection with real property contracts with a federal government agency. Such purchases constitute taxable sales to the contractor regardless that title to the property passes directly to the government or if the contractor is reimbursed directly by the government for the cost of the property.
The Instant Case
I have reviewed the contract in the instant case and find that the true object is for the provision of maintenance and repair of real property for the federal government. As such, the Taxpayer is operating in this case as a service provider and is the taxable user or consumer of all tangible personal property it purchases to satisfy its contractual obligations. The Taxpayer must therefor pay the tax to its vendors on these purchases. If the vendor does not collect the tax, the Taxpayer is required to remit the tax directly to the department on a Consumer Use Tax Return, Form ST-7.
Exceptions
As noted above, the Taxpayer is required to pay the tax on all tangible personal property pursuant to its contract with the Agency. The Taxpayer, however, would not be liable for the tax for tangible personal property purchased directly by the federal government and then furnished to the Taxpayer.
Another exception is when the credit of a government entity is bound directly to the purchase of the tangible personal property and a contractor has been officially designated as the purchasing agent for the government entity. This issue is further addressed in the enclosed Public Document 93-20 (2/5/93).
Summary
Based on the information and documents before me, the Taxpayer would not enjoy any exemptions from the tax on its purchases of tangible personal property under this contract. First, the true object of the contract is for provision of services. Also, there is no indication that the credit of the Agency is directly bound to the purchases at issue and that the Taxpayer officially serves as the purchasing agent on behalf of the Agency.
If you or the Taxpayer have any questions about this letter or require additional information from the department, please contact ***** in the department's Office of Tax Policy at *****.
Rulings of the Tax Commissioner