Tax Type
Retail Sales and Use Tax
Description
Data cable installation; Subcontracting
Topic
Taxability of Persons and Transactions
Date Issued
11-28-1990
November 28, 1990
Re: Request for Ruling: Sales and Use Tax
Dear ****
This will reply to your letter of June 19, 1990 in which you request a ruling on the applicability of the sales and use tax to specific transactions engaged in by ***** (the "Taxpayer").
FACTS
The Taxpayer provides high quality data cabling, computer hardware support and systems consulting services. It is primarily set up to install cabling in the walls and ceilings for Data Terminal Equipment in local area and wide area networking environments in both new and existing buildings. Once installed, the cabling becomes the property of the buildings' owners. The Taxpayer also sells at retail the various types of cable used in the networking environment and offers a variety of management and consulting services to small businesses.
The Taxpayer requests a ruling on the applicability of the sales tax to its services to provide and install cabling and to situations involving subcontracting.
RULING
I will separately address below each of the Taxpayer's questions:
Provision and Installation of Cabling: Virginia Regulation (VR) 630-10-27(G) (copy enclosed) provides that a "person selling and installing tangible personal property that becomes real property after installation is generally considered a contractor...." A contractor is defined in VR 630-10-27(A) as "any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon...." (Emphasis added) Thus, in the instant case the installation of computer cable is a service with respect to real estate and the Taxpayer is deemed to be a contractor, rather than a retailer, with respect to this service.
Accordingly, as a contractor, the Taxpayer is the user and consumer of all tangible personal property furnished to or by it in connection wit h the installation of the cabling and should pay the tax to its suppliers at the time of purchase of such property.
The Taxpayer's method of billing for the provision and installation of cabling as outlined in its letter is incorrect as it should not be charging its customers the sales tax. VR 630-10-27(A) provides that "[a] contractor, whether he be a prime contractor or subcontractor, does not pass the sales or use tax on to anyone else as a tax. He will take the amount of the tax into consideration in submitting bids."
Subcontracting of Cabling Services; Reporting Responsibilities: The Taxpayer subcontracted cabling services to another vendor who was installing a "complete computer system" at a customer site. The Taxpayer billed the vendor by taxing the itemized list of materials and not charging the tax on the separately stated installation charges. However, the vendor paid the invoice less the tax due on materials and submitted his resale certificate of exemption. The Taxpayer questions how this transaction should be handled for departmental reporting purposes.
In this situation, the Taxpayer also incorrectly billed the customer as it should have paid the tax on its purchases of materials used in this job and not billed the customer for the tax. This type of sale is not reportable on Form ST-9A.
VR 630-10-27(B) provides that a person who is a using and consuming contractor and also in the business of selling tangible personal property to customers, including contractors, may purchase the property for resale to others under a resale exemption certificate. However, it provides that he may not purchase under a resale exemption certificate any tangible personal property which he knows at the time of purchase will be furnished by him in connection with any specific contract. If a contractor/dealer removes from his sales inventory for use in the performance of a contract any tangible personal property purchased under a resale certificate, he must include the cost to him of such property on line 2 of Form ST-9A and pay the tax.
If you have any further questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner