Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments, real property contractor with a Virginia public school
Topic
Collection of Delinquent Tax
Date Issued
05-19-1999
May 19, 1999
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 sales and use tax assessment issued to ********** (the "Taxpayer') for the period September 1992 through September 1996. I note that a portion of the assessment has been paid.
FACTS
The Taxpayer is a real property contractor. The contested issues in this case concern audit items 9305 and 9406 which assess the tax on certain transactions made in connection with a real property contract with a Virginia public school. In these transactions, the Taxpayer made untaxed purchases of furniture and shelving. These items, which did not become realty upon installation, were furnished and installed by an out-of-state subcontractor.
Since the subcontractor furnished and installed the contested property, the Taxpayer questions the assessment.
DETERMINATION
Code of Virginia § 58.1-610 provides that:
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Any person who contracts ... 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 ... for the ultimate consumer and not for resale,....
Further, the regulation set out in Title 23 of the Virginia Administrative Code (VAC) 10-210-410 specifically provides that "[n]o sale to a contractor is exempt on the ground that the other party is a governmental agency, a public service corporation, a nonprofit school, or a nonprofit hospital, or on the ground that the contract is a cost-plus contract.'
This same regulation indicates that "[i]f a supplier of a contractor doing work in Virginia does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier'. Accordingly, while the Taxpayer's vendors in this case were obligated to collect the tax on their sales of furniture and shelving to the Taxpayer, the department may look to either the vendor or the purchaser for such tax liability. For example, the Fourth Circuit Court of Appeals has held that, "[a]lthough the seller is legally obligated to collect the tax from the purchaser, the statute, [Code of Virginia § 58.1-625], makes the tax the legal debt of the purchaser.' See, United States v. Forst, 569 F. 2d 811, (4th Cir. 1978).
Also see 23 VAC 10-210-693 which addresses the tax treatment of tangible personal property by persons who enter into contracts with the federal government, the state, or its political subdivisions. The application of the tax is based on whether the contract is for the sale of tangible personal property or for the provision of services (including, as in this case, real property construction services). If the contract is for the provision of services, the contractor is deemed to be the taxable user and consumer of all tangible personal property used in performing its services..
There is no indication or documentation in this case that the Taxpayer paid the tax to its subcontractor on the contested transactions. Therefore, and based on the statutes and regulations addressed above, I find that the assessment is correct.
Please return your payment for the balance of the tax, penalty and interest totaling ***** to ***** in the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days of the date of this letter. If payment is not received within that time, interest will accrue on the balance due. You may contact ***** at ***** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner