Tax Type
Retail Sales and Use Tax
Description
Installation Sales
Topic
Basis of Tax
Date Issued
04-06-1999
April 6, 1999
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****************
In your letter of January 28, 1999, you request a ruling on the application of the retail sales and use tax to "installed sale' transactions.
FACTS
A Delaware corporation (Retailer) sells, installs, and rents tangible personal property at wholesale and retail in Virginia. A customer purchases tangible personal property from the Retailer and requests the Retailer to install it. The Retailer contracts with an independent contractor (Contractor) or agent to complete the installation. This Contractor maintains its own stock of this type of tangible personal property, removes it from its own inventory, and installs it for the Retailer's customer. The Retailer prepares a sales invoice to bill its customer. The Contractor prepares a sales invoice to bill the Retailer. Both invoices reference the tangible personal property and installation services.
RULING
The key determinant is whether the tangible personal property becomes part of the realty after installation or remains tangible personal property after installation.
Sale of Tangible Personal Property
If the tangible personal property remains personal property after installation, then the Retailer may make a tax-free purchase of such items from the Contractor under the resale exemption. This entails the Retailer furnishing the Contractor with a completed and signed resale exemption certificate, Form ST-10.
When the Retailer bills its customer, it should charge the retail sales tax based on the sales price of the tangible personal property, provided it is registered with the Virginia Department of Taxation for the collection and remittance of the Virginia retail sales tax. However, Code of Virginia § 58.1-609.5(2) provides an exemption from the sales and use tax for separately stated installation labor charges.
For example, the customer buys several computers and wants them connected in a network. The Contractor furnishes and installs the computers. It bills the Retailer by separately stating charges for installation labor and the sales price of the computers. No sales tax should be charged by the Contractor if the Retailer presents the Contractor with a resale exemption certificate, Form ST-10. However, when the Retailer bills its customer, it must charge and collect the sales tax on the sales price of the computers but should not charge any sales tax on the separately stated installation labor charge. If the Retailer is not registered to collect the Virginia sales or use tax, it may not charge and collect the tax. In such instances, its customer is responsible for reporting and remitting the use tax to the department based on the cost price of the computers.
Real Property Installations
If the item installed by the Contractor becomes part of the realty, then the transaction between the Contractor and the Retailer is considered an exempt real property installation service. When performing such installations, the Contractor is considered the final taxable user of the item installed and does not charge a sales tax to the Retailer. Rather, the Contractor must generally pay the sales or use tax on the cost price of the property installed. See Title 23 of the Virginia Administrative Code 10210-410 and Code of Virginia § 58.1-610.
For example, the Contractor installs a water heater in a residence of the Retailer's customer. The Contractor pays the sales or use tax on the cost price paid for the water heater and all installation materials used in installing the water heater, including pipe, soldering, etc. The Contractor's charge to the Retailer is not taxable in this instance since the transaction is for real property installation services. The Retailer's billing to its customer is also not taxable, even if marked up.
Transferring Tax Compliance Burdens
To contractually transfer all tax compliance requirements from the Retailer to the Contractor does not change the application of the law. Thus, a retailer required under the law to charge, collect and remit the sales tax on taxable sales must be registered for and perform such responsibilities. In instances in which the Contractor is deemed to be the final taxable consumer of tangible personal property which it installs and which becomes part of the realty, the Contractor is generally required to pay the tax on the cost price of the installed items and does not pass the tax onto anyone else as a tax. On audit, the department will hold taxpayers liable for the tax in the manner prescribed under the law and regulations.
If you have questions about this response, please contact ***** of my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/20893R
Rulings of the Tax Commissioner