Tax Type
Retail Sales and Use Tax
Description
Mobile Home Dealer: Untaxed purchases
Topic
Property Subject to Tax
Date Issued
12-10-2001
December 10, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter requesting correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit. I apologize for the delay in responding to your letter. The Taxpayer has paid the noncontested portion of the audit, i.e., tax and interest in the amount of *****.
FACTS
The Taxpayer is a mobile and modular home dealer. An audit for the period January 1998 through December 2000 resulted in the assessment of use tax on various purchases of tangible personal property used or consumed in its operations.
The Taxpayer was also assessed use tax on the untaxed portion (35% or 40% of the cost price) of modular homes purchased by the Taxpayer from three modular home manufacturers for placement on Virginia home sites. These modular homes were purchased prior to the enactment of Code of Virginia § 58.1-610.1, effective July 1, 2000.
The Taxpayer takes exception to the tax assessed on these modular homes and maintains that it acted in good faith and remitted the sales tax on modular homes sold using sales tax formulas provided by the manufacturers. The Taxpayer also maintains that one manufacturer, however, properly collected sales tax from the Taxpayer based on procedures approved by the department in 1976.
The Taxpayer also claims that the collection of the assessment would place too great of a financial burden and hardship upon it.
DETERMINATION
Pursuant to Code of Virginia § 58.1-610, anyone who contracts to perform construction or installation with respect to real estate and furnishes the tangible personal property is deemed the final taxable consumer of such materials. Therefore, for placement of modular housing sections on a prepared and permanent foundation, it is important for sales and use tax purposes to know who is the contractor of such modular housing sections, (i.e., the one who actually installs these sections on a permanent foundation). Generally, the department looks at who furnished or hired the set-up crew in determining whether the manufacturer or the purchaser (e.g., dealer, contractor, landowner, etc.) is the contractor of the modular housing sections.
In this case, it is my understanding that the modular homes may be delivered to the job site or to the Taxpayer's lot. It is also my understanding that the Taxpayer may install the modular housing sections on permanent foundations. Alternatively, the manufacturer or someone hired by the manufacturer may perform this activity. Therefore, based on the facts presented, it is not clear whether the modular homes at issue were installed on permanent foundations by the Taxpayer or the manufacturer.
It should be noted that the courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and that the burden is upon the taxpayer to prove otherwise. The Taxpayer has not met this burden of proof. Therefore, I find no basis at this time to remove the contested transactions from the department's audit.
Notwithstanding the above, I will allow the Taxpayer a final opportunity to present documentation to the department to establish that the manufacturers of the modular homes at issue actually installed the modular homes on permanent foundations or had directly hired a set-up crew to perform this function on the manufacturer's behalf.
With respect to the one manufacturer with procedures set out in a 1976 letter, I
would refer to the second procedure which declares that if the manufacturer sells a
modular home in Virginia and does not roll it onto a foundation nor have a
subcontractor do the same, it would collect the tax based on the sales price amount. In
case it cannot be shown that the manufacturer installed the modular housing sections
at issue, then the manufacturer would be considered to have not collected the full
amount of tax owed on the transaction. In such instance, the improper collection of the
tax by the manufacturer does not alter the fact that the Taxpayer would still be
ultimately liable under the law for payment of the full amount of tax due as it would be
deemed the final consuming contractor of the modular housing sections.
Further, the invoicing of a set-up fee by a manufacturer does not necessarily establish that the manufacturer's employees, or a set-up crew hired by the manufacturer, performed the installation of the modular home. In fact, some manufacturers may charge a set-up fee and subsequently eliminate or refund the fee if the purchaser (such as the Taxpayer) performs the actual installation. In such instance, the Taxpayer would be liable for the tax based on 100% of the cost price (i.e., for purchases of modular homes occurring prior to July 1, 2000).
Effective July 1, 2000, the law changed to reduce the taxable base of modular homes sold at retail (i.e., sold without installation by the seller) from 100% to 60% of the sales price. It should be noted that the taxable base of the same type of retail sale made prior to July 1, 2000, is 100% of the sales price. This law change was not retroactive and, therefore, does not apply to any modular home charges included in this audit because those transactions occurred before July 1, 2000. See Virginia Tax Bulletin 00-3 (6/20/00); copy enclosed.
Offer in Compromise
Code of Virginia § 58.1-105 authorizes the Tax Commissioner to accept offers in compromise for tax assessments based on a substantiated claim of doubtful liability or doubtful collectibility. Although the Taxpayer has a final opportunity to establish that the manufacturers (not the Taxpayer) were the contractors with respect to the contested transactions, I find no basis from the facts provided to conclude that the assessment is of doubtful liability. Based on the financial statements presented, I also find no basis to conclude that the Taxpayer is without sufficient means to pay the assessment and must conclude that the assessment is not of doubtful collectibility. Therefore, I find no basis to compromise this assessment.
Partial Payment Plan
Notwithstanding the above, and if no substantial adjustment is subsequently made to the assessment, I will agree to consider a partial payment plan proposed by the Taxpayer to enable it to pay off the assessment within a reasonable amount of time. The Taxpayer may wait until the auditor has reviewed the Taxpayer's final information before sending its proposal for a partial payment plan to the department. The Taxpayer's proposal for partial payment plan should be sent to the attention of *****, Collections Supervisor, at the department's ***** District Office, *****.
Conclusion
Please furnish the requested information to the auditor, ***** within sixty (60) days of the date of this letter. The auditor will contact you soon to arrange for the receipt and review of such information.
If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/34013R
Rulings of the Tax Commissioner