Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments, real property construction contractor
Topic
Collection of Delinquent Tax
Date Issued
09-29-1999
September 29, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This is in reply to your letter of June 2, 1999, in which you seek correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer'), for the period June 1996 through December 1998.
FACTS
The Taxpayer is a real property construction contractor. The department's audit disclosed untaxed purchases of tangible personal property. The Taxpayer disagrees with the assessment of the tax on two of its purchases. The Taxpayer purchased fencing materials for use in a real property construction contract which the Taxpayer contends included the tax in the lump sum price. The Taxpayer also purchased furniture from an auction house for use in its administrative offices. While the invoices do not reflect that the sales tax had been charged, the Taxpayer states that the auctioneers would charge the tax if applicable. Lastly, the Taxpayer requests that the penalty be waived.
DETERMINATION
Contractors
Code of Virginia § 58.1-610(A) provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. Title 23 of the Virginia Administrative Code (VAC) 10-210-410 further provides that "the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.' (Emphasis added).
In this instance, the Taxpayer purchased fencing materials for installation in its performance of a real property contract. The department's auditor reviewed the vendor's invoice and was unable to verify any separately stated charges for the retail sales tax, as the sales invoices to the Taxpayer listed lump sum charges without any separation of the tax. Accordingly, the auditor properly assessed the tax on the lump sum charges and the Taxpayer is liable for the sales or use tax on its purchases.
With regard to the application of the tax to the purchases from the auctioneer, 23 VAC 10-210-4040(E), copy enclosed, specifically provides that as a consumer of property, the Taxpayer must pay the tax on its purchases used in its provision of services. However, the Taxpayer must remit the use tax to the department if the vendor does not collect the tax at the time of purchase. Accordingly, I find that the auditor was correct in including the auction purchases in the audit computations.
Based on the foregoing, I do not find cause for an adjustment of the department's audit results.
Penalty
Title 23 VAC 10-210-2032, copy enclosed, provides for the mandatory application of penalty to an audit based on the level of compliance exhibited by the taxpayer. Penalty is generally applied on a third or a subsequent audit unless the compliance ratio meets or exceeds 85% for use tax. The current audit, which is the Taxpayer's fourth, reflects a 62% compliance ratio. Based on this measurement, I find that the penalty was properly assessed. This same section also states that "The application of penalty to audit deficiencies will not be waived ... for other than exceptional mitigating circumstances.'
Based on the information before me, the Taxpayer has not presented any mitigating reasons to consider a waiver of the penalty. Consequently, I must deny the Taxpayer's request for waiver. Please note that, for the future, the Taxpayer will be expected to exhibit a compliance ratio of 85% or better to avoid an application of the penalty.
Please return your payment tor the balance of the tax, penalty and interest totaling ******* to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will accrue on the balance due from the original date of assessment. If you should have any questions regarding this matter, please contact ***** of the ***** department's Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This is in reply to your letter of June 2, 1999, in which you seek correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer'), for the period June 1996 through December 1998.
FACTS
The Taxpayer is a real property construction contractor. The department's audit disclosed untaxed purchases of tangible personal property. The Taxpayer disagrees with the assessment of the tax on two of its purchases. The Taxpayer purchased fencing materials for use in a real property construction contract which the Taxpayer contends included the tax in the lump sum price. The Taxpayer also purchased furniture from an auction house for use in its administrative offices. While the invoices do not reflect that the sales tax had been charged, the Taxpayer states that the auctioneers would charge the tax if applicable. Lastly, the Taxpayer requests that the penalty be waived.
DETERMINATION
Contractors
Code of Virginia § 58.1-610(A) provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. Title 23 of the Virginia Administrative Code (VAC) 10-210-410 further provides that "the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.' (Emphasis added).
In this instance, the Taxpayer purchased fencing materials for installation in its performance of a real property contract. The department's auditor reviewed the vendor's invoice and was unable to verify any separately stated charges for the retail sales tax, as the sales invoices to the Taxpayer listed lump sum charges without any separation of the tax. Accordingly, the auditor properly assessed the tax on the lump sum charges and the Taxpayer is liable for the sales or use tax on its purchases.
With regard to the application of the tax to the purchases from the auctioneer, 23 VAC 10-210-4040(E), copy enclosed, specifically provides that as a consumer of property, the Taxpayer must pay the tax on its purchases used in its provision of services. However, the Taxpayer must remit the use tax to the department if the vendor does not collect the tax at the time of purchase. Accordingly, I find that the auditor was correct in including the auction purchases in the audit computations.
Based on the foregoing, I do not find cause for an adjustment of the department's audit results.
Penalty
Title 23 VAC 10-210-2032, copy enclosed, provides for the mandatory application of penalty to an audit based on the level of compliance exhibited by the taxpayer. Penalty is generally applied on a third or a subsequent audit unless the compliance ratio meets or exceeds 85% for use tax. The current audit, which is the Taxpayer's fourth, reflects a 62% compliance ratio. Based on this measurement, I find that the penalty was properly assessed. This same section also states that "The application of penalty to audit deficiencies will not be waived ... for other than exceptional mitigating circumstances.'
Based on the information before me, the Taxpayer has not presented any mitigating reasons to consider a waiver of the penalty. Consequently, I must deny the Taxpayer's request for waiver. Please note that, for the future, the Taxpayer will be expected to exhibit a compliance ratio of 85% or better to avoid an application of the penalty.
Please return your payment tor the balance of the tax, penalty and interest totaling ******* to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will accrue on the balance due from the original date of assessment. If you should have any questions regarding this matter, please contact ***** of the ***** department's Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner