Document Number
10-268
Tax Type
Retail Sales and Use Tax
Description
Suppliers who sell tangible personal property to manufactured and modular housing dealers
Topic
Manufacturing Exemption
Tangible Personal Property
Taxable Transactions
Date Issued
12-16-2010



December 16, 2010




Re: Request for Ruling: Retail Sales and Use Tax

Dear *****:

This is in response to your matter in which you request a ruling on the application of the retail sales and use tax with respect to manufactured and modular housing constructed by members of the ***** (the Association).

FACTS


The Association requests information on how the Department of Taxation ("TAX") interprets and administers existing laws and regulations in regard to suppliers who sell tangible personal property to manufactured and modular housing dealers. The Association lists three scenarios, each with the same four questions. Our response follows each question.

RULING


This ruling applies to modular buildings as defined in Va. Code § 58.1-602 and used as homes, and to manufactured homes (mobile homes) as defined in Va. Code § 46.2-100. This ruling does not apply to stick-built homes (i.e., homes primarily built on the home site). For purposes of the retail sales and use tax administered by TAX, certain statutory terms defined in Va. Code § 58.1-602 apply to this ruling, as follows:
    • "Modular building" means, but shall not be limited to, single and multifamily houses, apartment units, commercial buildings, and permanent additions thereof, comprised of one or more sections that are intended to become real property, primarily constructed at a location other than the permanent site, built to comply with the Virginia Industrialized Building Safety Law (§ 36-70 et seq.) as regulated by the Virginia Department of Housing and Community Development, and shipped with most permanent components in place to the site of final assembly.
    • For purposes of this chapter, a modular building shall not include a mobile office as defined in § 58.1-2401 or any manufactured building subject to and certified under the provisions of the National Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C. § 5401 et seq.). [Emphasis added.]
    • "Modular building retailer" means any person who purchases or acquires a modular building from a modular building manufacturer, or from another person, for subsequent sale to a customer residing within or outside of the Commonwealth, with or without installation of the modular building to the foundation at the permanent site.

For purposes of the motor vehicle sales and use tax administered by the Virginia Department of Motor Vehicles (DMV), Va. Code § 46.2-100 defines the following:
    • "Manufactured home" means a structure subject to federal regulation, transportable in one or more sections, which in the traveling mode is eight body feet or more in width or 40 body feet or more in length, or, when erected on site, is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning, and electrical systems contained therein.

For purposes of this ruling, the phrase "manufactured housing" used in your ruling request shall have the same meaning as "manufactured home" as defined above. Such definition will also apply to the phrase "mobile home" as used in this ruling. In addition, the phase "modular housing retailer" used in your ruling request shall have the same meaning as "modular building retailer" as defined above. Also, the phrase "modular home" as used in this ruling shall have the same meaning as "modular building" as defined above. This ruling does not address the application of the tax to modular building manufacturers as defined in Va. Code § 58.1-602.

Scenario A

A supplier sells materials or products to a manufactured housing retailer.

Question A-1. For what type of products would there be a sales and use tax liability?

Motor Vehicle Sales and Use Tax

Virginia Code § 58.1-609.1 2 provides an exemption from the retail sales and use tax for motor vehicles and mobile homes (now referred to as manufactured homes). Pursuant to Title 23 VAC 10-210-990 A, the exemption only applies provided the motor vehicle is subject to the Virginia motor vehicle sales and use tax administered by DMV and further provided that such tax has been paid. Because a manufactured home is included in the definition of "motor vehicle" as set out in Va. Code § 58.1-2401, a manufactured home is generally subject to the Virginia motor vehicle sales and use tax administered by DMV.

Based on Public Documents (P.D.) 91-125 (7/19/91) and 98-100 (5/22/98), set-up components that become an integral part of a manufactured home when installed and attached to or purchased by the customer at the time a manufactured home is sold must be included as part of the sales price of the manufactured home and taxed at the motor vehicle sales and use tax rate of 3%. Such set-up components include concrete blocks, wooden wedges, concrete footers (prefabricated or poured on site), steps, blocking boards, anchors, anchor strapping, anchor nuts and bolts, strap buckles, roof brackets, foundation skirting, awnings, plumbing waste pipe and fittings, water pipe and fittings, bolts, screws, nails, electrical wiring, disconnect boxes, circuit breakers, connectors, conduit pipes, ground rods, electric adapters, heat tape, carpet tape, insulation, caulk sealant, and roof flashing. The manufactured housing retailer may purchase these component parts exempt of the tax provided it is registered with TAX1 and DMV. Such retailer collecting the motor vehicle sales and use tax from the customer on these components must remit such tax to DMV.

Retail Sales and Use Tax

In regard to manufactured homes permanently affixed to the real estate, Virginia Code § 58.1-2403 6 provides an exemption from the motor vehicle sales and use tax for a "manufactured home permanently attached to real estate and included in the sale of real estate." Thus, when a manufactured home is not subject to the motor vehicle sales and use tax because of its permanent attachment to realty, it would be subject to the retail sales and use tax administered by TAX in accordance with Title 23 VAC 10-210-990 A.2

For example, a manufactured housing retailer installs a manufactured home onto a permanent foundation and includes it in the sale of real estate. In such instances, the manufactured housing retailer is liable for the retail sales and use tax based on the cost price paid for such home. For example, if a supplier does not charge the retail sales tax on the cost price of the manufactured home, then the manufactured housing retailer must remit a 5% use tax to TAX.

As set out in P.D. 91-125, all set-up materials sold after the initial sale of the manufactured home (i.e., not in connection with the sale of the manufactured home) are subject to the retail sales and use tax of 5%. Sales of this nature are not conducted at the same time that the manufactured home is sold and are thus not included in the sales price of the manufactured home.

Furthermore, P.D. 91-125 holds that septic tanks and separately stated charges for labor or installation are not to be included in the sales price of a manufactured home. In addition, the charge for furnishing and installing a septic system is not subject to the retail sales and use tax because such transaction is for an exempt real property construction service. See Va. Code § 58.1-610 A. The person furnishing and installing a septic system, however, is deemed the taxable consumer of it and must pay the retail sales and use tax on the cost price of the septic tank, piping, gravel and other materials used.

Question A-2. For what types of products would there be "no" sales and use tax liability?

Set-up components may be purchased by a TAX-registered dealer exempt of the retail sales and use tax when they are for use in the installation of a manufactured home and the charge for such components is included in the sales price of such home and subject to the motor vehicle sales and use tax.

Question A-3. In those instances for which there is a sales and use tax liability, which party is responsible for its collection and remittance?

A manufactured housing retailer is required to collect the motor vehicle sales and use tax on the sales price of a manufactured home that includes charges for set-up components. Such tax must be remitted to DMV.

A manufactured housing retailer is required to collect the retail sales tax on the sales price of freestanding furniture sold in connection with the sale of manufactured homes. Such sales tax must be remitted to TAX.

A manufactured housing retailer that sells set-up components without installation after the sale of a manufactured home must collect the retail sales price on the sales price for such components. Such sales tax must be remitted to TAX. If such retailer sells and installs set-up components independent of the sale of a manufactured home, it is required to report and remit the consumer use tax on the untaxed cost price of such components. Such use tax must be remitted to TAX.

Question A-4. (a) What is the effect of the retailer submitting a tax-exempt certificate to the supplier? (b) How does that change the responsibilities of each of the parties with respect to tax liability, collection and remittance?

(a) The manufactured housing retailer may purchase set-up components exempt of the tax provided it is registered with TAX for sales tax collection purposes and furnishes TAX's resale exemption certificate, Form ST-10, to the supplier. Once the resale exemption certificate is furnished to the supplier, the retailer may buy all materials for resale exempt of the tax from such supplier. The retailer, however, is responsible for informing the supplier of any purchase of materials that it knows will be used or consumed by the retailer so that the supplier (if registered with TAX) may charge and collect the sales tax on such taxable materials. If the retailer fails to identify such taxable purchases to the supplier, or the supplier fails to charge the sales tax on materials identified by the retailer as taxable, the retailer is responsible for reporting and remitting a consumer use tax to TAX on those items it uses or consumes in Virginia.

(b) A resale exemption certificate (Form ST-10) given by a retailer and taken in good faith by the supplier relieves a registered supplier from collecting the sales tax on the sale of tangible personal property to such retailer. See Va. Code § 58.1-623 and Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A. Although a resale exemption certificate generally relieves the retailer from the tax on its purchases, the retailer is still liable for the collection of the tax whenever it makes taxable retail sales, such as those indicated in my answer to Question A-3. The acceptance of a resale exemption certificate by the supplier, however, does not relieve the supplier from a tax liability if the supplier is the one furnishing and installing materials that become real property. In such instances, the supplier is the taxable consumer and thus liable for payment of the use tax on the cost price of the materials that it affixes to realty. See Va. Code § 58.1-610 A.

Scenario B
    • A supplier sells materials or products to a modular housing retailer.

Question B-1. For what type of products would there be a sales and use tax liability?

Retail Sales

When a modular housing retailer sells at retail a modular building, such as a modular home that satisfies all of the criteria of the definition of "modular building" as set out in Va. Code § 58.1-602, such modular home will be subject to the retail sales and use tax administered by TAX based on sixty percent (60%) of its sales price. See Va. Code § 58.1-610.1. For example, a modular home selling for $100,000 is taxed on $60,000 (i.e., 60% of the $100,000). The tax on such sales price is $3,000 ($60,000 x 5%).

When set-up components, such as roofing materials, siding, boards, adhesive, nails, screws, bolts, washers, nuts, etc., are sold at retail to a consumer (such as a contractor or individual homeowner that is installing these materials on the modular home), the modular housing retailer (when registered with TAX to collect the sales tax) must collect the Virginia retail sales tax of 5% based on the full amount (100%) of the sales price for such materials and remit such collected sales tax to TAX. For instance, roofing materials sold with the modular home and used to seal gaps in the roof between newly installed modular sections of the home or subsequently sold after the home's installation, are subject to the retail sales and use tax administered by TAX. If such roofing materials are sold for $100, then the retail sales tax is $5 ($100 x 5%).

Contract Sales - Use or Consumption of Materials

If the modular housing retailer contracts to furnish and install certain real property improvements, it will be liable for the retail sales and use tax on the cost price of all of the materials used or otherwise incorporated into the realty. Real property improvements are those improvements made to realty that are of a permanent nature and include, but are not limited to, permanent foundations and footers for modular homes, septic systems, sewer pipes, driveways (gravel, concrete, asphalt, or brick), wells, lamp posts and other permanent electrical fixtures, walkways, concrete curbing, patios, and retaining walls. Improvements to realty are subject to the tax application set out in Va. Code § 58.1-610. Also see P.D. 07-47 (4/26/07) for tax application of site work materials.

If a modular housing retailer sells construction materials without installation to contractors, individual homeowners or other consumers, it should collect the retail sales tax on all retail sales of such materials if it is registered with TAX to collect the sales tax. Construction materials are those materials used in the on-site construction of real property improvements as noted above. On the other hand, when a modular housing retailer sells and permanently installs construction materials, it is deemed the consuming contractor of such materials. For example, a modular housing retailer contracts to furnish and install a concrete walkway. It charges the customer $800 for the job and uses materials costing $150. The charge for constructing the walkway is not taxable because the transaction is for an exempt real property construction service. However, the modular housing retailer owes retail sales or use tax of $7.50 ($150 x 5%) on the cost price of materials used in constructing the walkway.3


Question B-2. For what types of products would there be "no" sales and use tax liability?

No tax liability is incurred when a modular housing retailer buys tangible personal property for resale to consumers. The purchase of items for resale qualifies for the resale exemption. For example, the modular housing retailer may purchase construction materials exempt of the tax if purchased for resale to contractors who will use or consume such materials.

In addition, Va. Code § 58.1-609.10 4 provides an exemption from the retail sales and use tax for "[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth." The retailer should maintain suitable documentation to establish the exemption. Suitable documentation includes, but is not limited to, annotating the destination of the delivery on the face of the invoice, retaining shipping manifests or other shipping evidence to prove the occurrence of the exempt delivery, and maintenance of sufficient customer contracts or files to verify that the transaction was a retail sale instead of a construction contract project.

When an out-of-state retailer sells tangible personal property to a consumer in Virginia, the sale should be exempt from that state's sales tax as a sale in interstate commerce. However, if such out-of-state retailer is registered to collect the Virginia retail sales and use tax, it should collect such tax on the sale to the Virginia consumer and remit it to TAX.

The purchase of tangible personal property for use or consumption by the modular housing retailer does not qualify for the resale exemption. In such instances, the modular housing retailer must pay the sales tax charged by the supplier or remit the consumer use tax to TAX if the supplier failed to charge the sales tax on a taxable purchase made by the retailer.

Question B-3. In those instances for which there is a sales and use tax liability, which party is responsible for its collection and remittance?

Retail Sales Tax

When a modular housing retailer sells modular homes or other tangible personal property at retail (i.e., no installation is performed by the retailer), the retailer should collect the correct amount of sales tax from the consuming customer. Such sales tax collected must be remitted to TAX in accordance with Va. Code § 58.1-615 and Title 23 VAC 10-210-480.

Consumer Use Tax

When a modular housing retailer sells and permanently installs modular homes and other tangible personal property, the retailer is deemed a real property contractor and is liable for the tax based on (a) the modified cost price of the modular home, and (b) the full cost price of other tangible personal property used or consumed. For instance, a modular housing retailer contracts with an individual to furnish and install a modular home, a permanent foundation, an asphalt driveway, and a concrete walkway. The modular housing retailer subcontracts out the driveway and walkway work to an independent contractor. In this instance, the costs are as follows:

Cost of modular home to modular home retailer = $75,000
Cost of materials for permanent foundation = $7,000
Charge for driveway = $5,000
Charge for walkway = $1,500

Based on these costs, the tax application for the modular housing retailer is as follows:

Tax on the modular home = $2,250 ($75,000 x 60% x 5%)
Tax on materials for permanent foundation = $350 ($7,000 x 5%)
Total tax owed by modular housing retailer = $2,600 ($2,250 + $350)

Because the charge for the driveway and walkway are real property improvements performed by a subcontractor, it is not taxable to the modular housing retailer or to the retailer's customer. Rather, the subcontractor furnishing and installing the driveway and walkway is the consuming contractor and thus liable for the retail sales and use tax on the cost price of materials used and should not pass on the tax to the modular housing retailer as a tax.

Question B-4. (a) What is the effect of the retailer submitting a tax-exempt certificate to the supplier? (b) How does that change the responsibilities of each of the parties with respect to tax liability, collection and remittance?

(a) A modular housing retailer may submit a resale exemption certificate, Form ST-10, to a supplier of modular homes or construction materials and thus purchase such items exempt of the retail sales and use tax, if it buys such items for resale purposes only and is registered with TAX to collect the sales tax when it sells such items at retail to consumers. TAX's resale certificate is a blanket certificate arid may be relied upon for subsequent exempt purchases from the same supplier. Notwithstanding, the modular housing retailer is required to inform the supplier when it makes a taxable purchase when a resale exemption certificate presented by such retailer has been previously accepted by the supplier.

In the event that the supplier does riot collect sales tax on an identified taxable purchase, the modular housing retailer is responsible for remitting the consumer use tax to TAX on all materials that it uses.

(b) If a supplier takes in good faith a resale exemption certificate, Form ST-10, that is complete in all respects and dated prior to or at the time of the sale, and the modular housing retailer has not indicated that it will install the tangible personal property or otherwise make a taxable use of it, then the supplier may sell such property exempt of the tax. The modular housing retailer is responsible for collecting the sales tax if the property is sold at retail without installation to realty. If the modular housing retailer makes a taxable use of the property purchased exempt of the tax, it is responsible for remitting the consumer use tax on 100% of the cost price paid for construction materials and on 60% of the cost price paid for modular home sections used by the retailer in real property construction contracts. See Va. Code § 58.1-623 C.

Scenario C

A supplier sells materials or products to a housing retailer who sells both manufactured and modular homes.

Question C-1. For what type of products would there be a sales and use tax liability?

The tax liabilities are the same as those set out in the responses to Questions A-1 and B-1.

Question C-2. For what types of products would there be "no" sales and use tax liability?

The responses given for A-2 and B-2 apply here. In addition, a retailer engaged in both the retail sale of manufactured and modular homes may purchase all of its set-up components and construction materials exempt of the tax. Such retailer, however, is expected to remit the consumer use tax to TAX on any construction materials that it installs into the realty or otherwise uses or consumes. Such retailer is also expected to remit the consumer use tax to TAX on set-up components that are installed by the retailer and not subject to the motor vehicle sales and use tax (such as when the set-up components are sold and installed independent of the sale of the manufactured home, or are included in the sale of the manufactured home sold along with the real estate).

Question C-3. In those instances for which there is a sales and use tax liability, which party is responsible for its collection and remittance?
    • The responses given for Questions A-3 and B-3 apply here.

Question C-4. (a) What is the effect of the retailer submitting a tax-exempt certificate to the supplier? (b) How does that change the responsibilities of each of the parties with respect to tax liability, collection and remittance?

(a) The responses given for Questions A-4 (a) and B-4 (a) apply here.

(b) The responses given for Questions A-4 (b) and B-4 (b) apply here.

CONCLUSION


This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result. This response is intended to provide general tax guidance only and thus is not intended to apply to every circumstance.

The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this ruling, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,


                • Linda D. Foster
                  Deputy Tax Commissioner



AR/1-4581494473.R
1. Registration with TAX is necessary in order for the retailer to buy set-up materials exempt of the retail sales and use tax using TAX's resale exemption certificate, Form ST-10.
2. This regulation requires that "[a]ny type of motor vehicle which is not subject to the motor vehicle sales and use tax shall be subject to the retail sales and use tax when sold, leased or rented."
3. As set out in Title 23 VAC 10-210-410 A, a real property contractor (such as the modular housing retailer in this example) does not pass on the tax as a tax. Rather, it must take the tax into consideration like other expenses when bidding on a job.

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46