Tax Type
Retail Sales and Use Tax
Description
Retail sale of tangible personal property; Resale exemption certificate; Invoice
Topic
Exemptions
Records/Returns/Payments
Sale for Resale
Tangible Personal Property
Date Issued
06-14-2012
June 14, 2012
Re: § 58.1-1821 Determination: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period May 2008 through April 2011. The Department's records indicate that the contested assessment is paid in full.
FACTS
The Taxpayer contests the tax assessed on a truck scale. Based on the invoice presented, the Taxpayer charged a lump-sum amount for merchandise consisting of a 70'x11' truck scale, load cells, a ticket printer, a display, a crane rental and drawings, and a lump-sum amount for freight, labor for installation and calibration, and freight for engineering drawings. The Taxpayer maintains that this transaction constitutes a retail sale of tangible personal property because the customer furnished a resale exemption certificate and the Taxpayer did not know whether the customer intended for the scale to become part of the real estate.
The Taxpayer also requests waiver of assessed penalty.
DETERMINATION
Resale Claim
Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A provides that "[a]II sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. The certificate will remain in effect except upon notice from the Department of Taxation that it is no longer acceptable. However, a certificate that is incomplete, invalid or inconsistent on its face is never acceptable, either before or after notice."
The Taxpayer claims to have taken a resale exemption certificate in good faith for this scale installation transaction. However, I have several concerns about the resale exemption certificate presented in this case. First, the resale exemption certificate is dated April 15, 2011, although the sale and installation of the scale occurred in May 2008. Because the Taxpayer did not have the resale certificate in its possession prior to or at the time of the transaction or soon afterwards, the Taxpayer cannot successfully claim that it relied upon the resale certificate for not collecting the sales tax. Because the transaction predates the certificate by three years, the certificate cannot be considered taken in good faith.
Second, the resale exemption certificate is unacceptable for the scale at issue. On its face, the certificate provides no indication that the customer is engaged as a dealer in some type of retail or wholesale activity, such as a scale retailer. Rather, it indicates that it is engaged in solid waste management, which is typically considered a service business. According to the customer's website, it is engaged in the business of waste hauling, disposal, and recycling services. Its website also indicates that it operates a landfill. These service activities are not traits of a retail or wholesale business.
Third, to claim the resale exemption on a truck scale that is being installed into a heavy duty concrete framework affixed to the ground is not indicative of an intention to resell the scale. The only possibility for a resale claim would be that the customer planned to make an exempt demonstration use of the scale in connection with a retail scale business. Such possibility is not supported by the resale exemption certificate. For instance, nowhere on the certificate does it state that the customer is engaged in any retail or wholesale activities, such as a retailer of truck scales.
Fourth, the scale at issue is not a portable unit that is intended for easy relocation and set up. Rather, based on the photograph provided, its intended purpose would appear to be for use in one place.
Based on the foregoing, the facts do not support a conclusion that the customer was acting in the capacity of a retailer or wholesaler. Rather, the facts support a conclusion that the customer purchased a truck scale for its own use to measure the weight of vehicles loaded or unloaded in connection with its landfill business. Accordingly, the resale exemption claim is denied.
Real Property Fixture
It has been the longstanding position of the Department to treat pit-type truck scales as becoming real property upon installation. See Public Document (P.D.) 94-151 (5/13/94). I would note that P.D. 94-151 also sets out the following long-standing policy:
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- It appears that . . . the above ground truck scales may be placed for either temporary or permanent installation depending on model design, accessories and type of approaches. When set on concrete piers and simply bolted into place, with no poured approaches, the unit is deemed to remain tangible personal property. In those installations requiring poured concrete approaches, or other permanent installations, the scales are deemed realty upon installation.
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- In conclusion, the Taxpayer is considered to be a contractor as defined in VR 630-10-27 [currently, Title 23 of the VAC 10-210-410] when it sells and installs scales which become real property upon installation. In such cases the Taxpayer is deemed to be the user and consumer of scales and other items which become part of realty and must accrue the tax on the cost price of the scales and other items.
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- Furthermore, this tax is not passed on to the customers as a tax, but should be incorporated in the Taxpayer's bid as a cost of doing business. Therefore, when operating as a contractor, the Taxpayer may not accept any certificates of exemption relieving it of its responsibility to pay the tax on the cost price of scales which become part of realty. [Emphasis and insert added.]
- Furthermore, this tax is not passed on to the customers as a tax, but should be incorporated in the Taxpayer's bid as a cost of doing business. Therefore, when operating as a contractor, the Taxpayer may not accept any certificates of exemption relieving it of its responsibility to pay the tax on the cost price of scales which become part of realty. [Emphasis and insert added.]
Based on P.D. 94-151, the truck scale at issue is deemed a real property installation. This classification of the scale installation as real property is consistent with Va. Code § 58.1-610 A. According to this statute, any person who contracts in writing or by purchase order to perform construction or installation services with respect to real estate or fixtures thereon and who furnishes the tangible personal property is deemed to have purchased such tangible personal property for use or consumption. This classification is also consistent with the three general tests set out by the Virginia Supreme Court 3 for determining whether tangible personal property placed upon realty becomes realty. These tests are:
- 1. Annexation of the property to the realty,
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- 2. Adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and
3. The intention of the parties.
- 2. Adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and
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The method of the annexation to the realty receives slight consideration and then only as a circumstance from which the intention of the annexor may be deduced.4
In this case, a truck scale was installed on a concrete foundation specifically prepared to serve as a support for the scale. Connections were made between the scale and the foundation as noted above. Once these connections were made, the structure became complete such that the scale and the foundation act as one unit. The scale cannot be operated without the foundation and the foundation serves no purpose without the scale. Thus, the scale was annexed to the realty.
While the scale could potentially be relocated, relocation is unlikely because there is no indication that the scale manufacturer designed the scale for portability.5. Further, the addition of a concrete deck after the modules were set in place adds substantial weight to the structure and may make it impractical and risky to move without damaging it, especially if it has been in use for some time. Furthermore, the scale manufacturer has published engineering specifications for a concrete deck motor truck scale. Such specifications require the use of a concrete foundation that extends the full length and width of the scale platform and a concrete approach at each end. In addition, all load bearing areas must be reinforced. For the transaction in question, permanent concrete approaches were used at both ends of the scale as well as concrete piers were used underneath the scale. Thus, relocation of the scale would require a great cost for erecting the same type of reinforced concrete foundation and approaches as well as for dismantling, moving and reinstalling the scale. Because of the great costs involved in relocating the scale, relocation seems unlikely except, perhaps, under extraordinary circumstances, such as the closure of the landfill or some other significant change in the business operation.
In determining whether an article used in connection with realty is to be considered a fixture, adaptation of the chattel to the use of the property to which it is annexed is entitled to great weight, especially in connection with the element of intention.6 Because the scale was installed at an industrial landfill, it is likely that the truck scale is required for some business purpose, such as to measure the weights of trucks or other vehicles bringing refuse into the landfill perhaps to accurately charge by the weight of the refuse deposited in the landfill. It is reasonable to conclude that the truck scale is an integral and essential part of the landfill operation. In addition, the manufacturer's website indicates that this scale is the strongest concrete deck scale that it sells. The scale manufacturer also indicates that the scale is an exceptional durable structure with a long service life and that the user should get years of trouble-free weighing. Because the scale was made for heavy duty and long term use, it would appear that the scale was adapted to the use or purpose of the realty.
In this case, the intention to permanently or temporarily affix the scale to realty is not indicated on any contract document presented. When the intention is not expressed in words, it may be inferred from the nature of the article affixed, the purpose for which it was affixed, the relationship of the person making the annexation, and the structure and mode of annexation.7 The truck scale is designed for a minimum life expectancy of 20 years. It is intended for permanent use in conjunction with a landfill operation and is thus essential for such purpose. It is not designed for easy portability. Rather, relocation would appear to entail great costs to erect another foundation and approaches. In addition, the Taxpayer contracted with a landfill operator to furnish and affix the scale to a permanent foundation specifically built for its use. Pursuant to Va. Code § 58.1-610 A, this contractual relationship requires the treatment of the Taxpayer as a consuming contractor. Although the scale is designed to be easily maintained, it is connected to a concrete foundation and is thus annexed to the realty. All of these traits taken together indicate an intention to permanently affix the truck scale to the real estate. As such, the Taxpayer is liable for the tax as noted above.
Because the Taxpayer failed to provide documentation related to its costs for the scale and other items furnished, the truck scale was assessed on the total amount charged for the transaction. During the appeals process, the Taxpayer furnished an invoice from the scale manufacturer indicating the cost price of the scale and display. The Taxpayer also indicated that it could furnish documentation to establish the cost price of the ticket printer. Additional documentation is also needed to establish the cost price of the load cells. Generally, I would not treat a freestanding printer and display as a part of a real property contract. In this case, however, the Taxpayer charged a lump-sum amount for all of the merchandise. For this reason, the consumer use tax will be imposed on all of the merchandise based on the cost price to the Taxpayer. If the Taxpayer had separately stated the charges for the printer and the display, they would have been subject to the sales tax based on the sales price charged. Based on the determination in this case, the audit will be revised to reflect the cost price of the truck scale and its component and accessory parts, provided the Department's auditor is able to verify all of the costs of such items via the Taxpayer's records.
In regard to other costs, the Taxpayer is not liable for tax on separately stated freight charges for the delivery of (1) the scale from the scale manufacturer to the jobsite, and (2) engineering drawings. As the consuming contractor in this transaction, the Taxpayer is liable for the tax on the crane rental if the crane was rented without an operator. See Title 23 VAC 10-210-840 A.
Penalty
No penalty was assessed on the contested sale of the truck scale. Penalty was assessed by the auditor on purchases held in the audit. On third and subsequent audits, penalty is generally applied unless the taxpayer's compliance ratios meet or exceed 85% for sales tax and 85% for use tax. See Title 23 VAC 10-210-2032 A 3. In this third audit, the Taxpayer exhibited no consumer use tax compliance. Accordingly, a 30% compliance penalty was properly assessed.
For purchases occurring prior to June 1, 2009, a 20% post-amnesty penalty was applied in addition to the 30% compliance penalty. At the conclusion of amnesty, any tax liability that was eligible for amnesty, but remained unpaid, became subject to a 20% post-amnesty penalty. See subsection F. 1 of Va. Code § 58.1-1840.1. The Department has issued guidelines for when the post-amnesty penalty may be waived. See P.D. 09-140 (9/28/09). Based on the facts provided, I find no justification for the waiver of the post-amnesty penalty.
CONCLUSION
The audit will be revised in accordance with this determination, provided the Taxpayer furnishes documentary evidence (e.g., the requested invoices) to the auditor within 30 days of the date of this letter. The auditor will contact the Taxpayer within 10 days of the date of this letter to arrange for the receipt of the requested documentation. Once the revision is completed, the overpaid amount will be refunded as soon as practical with interest in accordance with Va. Code § 58.1-1833.
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 determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
Craig M. Burns
Tax Commissioner
- Sincerely,
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AR/1-499E3462241.R
1.Load cells are used to measure the weight of the truck.
2.Concrete thickness is based on scale information from the manufacturer's website.
3. Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550, 172 S.E.2d 757 (1970).
4.Danville Holding Corporation v. Clement, 178 Va. 223, 231, 16 S.E.2d 345, 349 (1941).
5.According to its website, the scale manufacturer does offer portable truck scales but does not indicate that the scale at issue is designed for portable use.
6.Danville Holding Corporation, 178 Va. at 223.
7.Id. at 232.
Rulings of the Tax Commissioner