Tax Type
Retail Sales and Use Tax
Description
Manufactures, fabricates, and erects concrete components for a political subdivision
Topic
Manufacturing Exemption
Date Issued
08-25-2004
August 25, 2004
Re: Request for Ruling: Retail Sales and Use Tax
Dear ***********:
This will reply to your letter in which you request a ruling on behalf of your client, ***** (the "Taxpayer"), concerning the application of the retail sales and use tax to purchases made in connection with the construction of the Virginia Advanced Shipbuilding and Carrier Integration Center ("VASCIC"). I apologize for the delay in the Department's response.
FACTS
The Taxpayer manufactures, fabricates, and erects concrete components. The Taxpayer has entered into a real property contract with the prime contractor for the VASCIC project to manufacture and erect columns, double tees, wall panels, ledge beams and similar items that will become part of the parking garage and laboratory. The prime contractor has issued the Taxpayer a completed Form ST-12 exemption certificate indicating that purchases made in connection with the VASCIC project are exempt from sales and use tax because they are for use or consumption by a political subdivision of the Commonwealth of Virginia. The Industrial Development Authority of the ***** (the "IDA") is a political subdivision of the Commonwealth and was responsible for entering into contracts for the construction of the VASCIC facility. The IDA has authorized contractors to use the government exemption certificate to make exempt purchases for use on the VASCIC project.
The Taxpayer seeks confirmation from the Department that the exemption indicated on Form ST-12 is applicable to purchases made in the performance of its contract for the VASCIC project. If the exemption is available, the Taxpayer seeks guidance on the proper refund procedures and the computation method to use when seeking reimbursement of sales and use taxes paid on purchases for the VASCIC project.
RULING
Virginia Code § 58.1-610 generally makes all real property contractors the users or consumers of tangible personal property purchased for use in real property contracts. Title 23 of the Virginia Administrative Code (VAC) 10-210-410(A) states, "No sale to a contractor is exempt on the ground that the other party to the contract is a governmental agency ...." This rule applies to contractors that perform real property contracts on behalf of government entities including federal, state, and local governments. One exception to this rule is found in Va. Code § 58.1-609.1(4), which provides an exemption from sales and use tax for:
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- tangible personal property acquired by the Advanced Shipbuilding and Carrier Integration Center and transferred to a Qualified Shipbuilder as defined in the third enactment of Chapter 790 of the 1998 Acts of the General Assembly.
This exemption was enacted by the 1999 General Assembly to preserve the use of the governmental exemption by the IDA on purchases of tangible personal property for use in the VASCIC facility. The Department recently issued Public Document 03-58 (08/12/03), which addresses the application of this sales and use tax exemption to contractors performing work on the VASCIC project. This document explains that the language in Va. Code § 58.1-609.1(4) does not extend the governmental exemption to purchases made by contractors and subcontractors in the performance of contracts related to the VASCIC facility.
The Department's long-standing policy with respect to purchases made by governmental entities for transfer to contractors requires that the purchase transactions occur directly between the governmental entity and the supplier, i.e., purchases must be billed directly to the governmental entity and paid for out of public funds. Generally, contractors and subcontractors cannot use the governmental exemption to make exempt purchases that are billed to and paid for out of their own funds. The 1999 amendment to the governmental exemption, which included the exception for the VASCIC project, did not alter this policy. Thus, contractors and subcontractors for the VASCIC project are required to pay sales tax or use tax on direct purchases of tangible personal property for use in the project.
In the case of the VASCIC project, only in instances where the credit of the Newport News Industrial Development Authority (the "IDA") is bound directly and the contractor or subcontractor has been officially designated as a purchasing agent for the IDA can purchases be made exempt of the tax. Contractors and subcontractors that purchase materials for this project without the proper purchasing agent designation are required to pay sales or use tax on the transactions. The use of the governmental exemption certificate, Form ST-12, is not appropriate because there is no "pass through" of the governmental exemption that would allow contractors or subcontractors to make direct purchases exempt of the tax. If the supplier does not charge sales tax, the contractor or subcontractor is required to remit use tax directly to the Department.
The purchase transactions at issue were between the Taxpayer and its suppliers. Based on the information provided, the Taxpayer was billed directly by suppliers and paid for these purchases with its own funds. The Taxpayer has not presented evidence that it has met the criteria in Title 23 VAC 10-210-690 requiring designation by the IDA that the Taxpayer was the IDA's purchasing agent and that the IDA's credit was bound by the Taxpayer's purchases. Accordingly, there is no basis for the Taxpayer to claim refunds of sales and use taxes paid on tangible personal property that was used in the performance of contract work on the VASCIC project. Consistent with the Department's policy as explained in P.D. 03-58, the Taxpayer correctly paid sales and use tax on its direct purchases of materials and supplies used in the performance of the VASCIC contract.
The Code of Virginia sections, regulations and the public documents cited are available on-line in the Tax Policy Library section of the Department's web site at www.tax.state-va.us. If you have any questions concerning this determination, please contact ***** at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/31305S
Rulings of the Tax Commissioner