Document Number
13-177
Tax Type
Retail Sales and Use Tax
Description
Untaxed charges and non-collection of tax on sales and installations of countertops occurring on and after July 1, 2010.
Topic
Collection of Tax
New Procedure(s)
Taxable Transactions
Date Issued
10-10-2013

October 10, 2013



Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the "Taxpayer") 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 June 2009 through May 2012.

FACTS

The Taxpayer engages in countertop sales and services. An audit resulted in the assessment of use tax on certain purchases of tangible personal property. Sales tax was also assessed on untaxed sales of sinks, bowls, china vanities, countertops and other items. In regard to countertops, the Taxpayer either self assessed and paid consumer use tax or paid the tax to the vendor on the cost price of these items. However, as a result of the law change that went into effect on July 1, 2010, the Taxpayer failed to charge and collect the sales tax on sales and installations of countertops occurring on and after July 1, 2010.

The Taxpayer contests the sales tax assessed on sales and installation of countertops, sinks, and china bowls. The Taxpayer maintains that it was correctly collecting the tax in the prior audit period as a retailer of countertops and was then erroneously informed by the prior auditor that it was a contractor with respect to sales and installations of countertops. Because of such erroneous advice, the Taxpayer requests the abatement of the contested items. If the prior guidance was not erroneous, the Taxpayer requests the removal of the sinks and china vanities from the audit because such items are not specifically identified in Va. Code § 58.1-­610 D as subject to such provisions.

DETERMINATION

Virginia Code § 58.1-610 specifies the statutory provisions applicable to contractors engaged in construction, installation, repair or any other service with respect to real estate or fixtures thereon. Beginning on and after July 1, 2010, subsection D of this statute was amended to set out the following:
    • Tangible personal property incorporated in real property construction which loses its identity as tangible personal property shall be deemed to be tangible personal property used or consumed within the meaning of this section. Any person selling fences, venetian blinds, window shades, awnings, storm windows and doors, locks and locking devices, floor coverings (as distinguished from the floors themselves), cabinets, countertops, kitchen equipment, window air conditioning units or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items. [Emphasis added.]

For purposes of this statute, Title 23 of the Virginia Administrative Code (VAC) 10-210-­410 G provides the following:
    • A "retailer" shall be deemed to be any person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of the aforementioned items, and who performs installation as part of or incidental to the sale of the aforementioned items. As so defined, a retailer is not classified as a using or consuming contractor with respect to installations of the aforementioned items. A retailer must treat such transactions as taxable sales except that installation charges when separately stated on an invoice are exempt from tax.

Countertops

Virginia Code § 58.1-1835 allows the Tax Commissioner to abate an assessment or a portion of an assessment that is attributable to erroneous advice furnished to a taxpayer in writing by an employee of the Department acting in an official capacity. Notwithstanding such provision, I find that the prior auditor did not provide erroneous advice to the Taxpayer.

The Department's policy with respect to the application of the retail sales and use tax to a transaction for the sale and installation of countertops is longstanding. In such instances, the Department has held, until the law change for countertops took effect on and after July 1, 2010, that such transactions constituted a real estate construction service and that persons installing such countertops were the taxable consumers of the materials that went into the construction and installation of such countertops. This former policy is published in several Public Documents (P.D.): P.D. 10-20 (3/26/10), P.D. 09-102 (6/24/09), P.D. 09-35 (3/31/09), P.D. 08-98 (6/18/08), P.D. 00-83 (5/16/00), and P.D. 96-111 (5/31/96).


Accordingly, the prior auditor correctly applied the Department's longstanding policy to the transactions in question. As such, I find no reason to abate the assessment on this basis.

Sinks and China Bowls

While sinks and china bowls are not specifically identified in Va. Code § 58.1-610 D, the special retailer provisions of such statute do apply to "kitchen equipment" and to items that are "like or comparable" to kitchen equipment. The sales tax statute and regulations, however, do not define the term "kitchen equipment." While no common definition of "kitchen equipment" could be found, the term "equipment" is defined as “[s]omething with which one is equipped,” and the term “equip” is defined as “[t]o furnish with necessities, as tools or provisions.” Webster's 11 New College Dictionary, page 381 (1995). Based on these definitions and with respect to the real estate purposes of Va. Code § 58.1-610 D, the term “kitchen equipment” appears to be intended to apply to appliances that are necessary for use in a kitchen and become a fixture in the kitchen of a real property structure when installed. In P.D. 07-108 (7/6/07), the Tax Commissioner cited two examples of kitchen equipment, i.e., stoves and ovens. Accordingly, the term “kitchen equipment” would typically include stovetops, built-in ovens, built-in microwave ovens, under-the-counter dishwashers and ranges.

Kitchen equipment is not necessarily restricted to kitchen appliances but may include other equipment necessary for use in the kitchen. For purposes of Va. Code § 58.1-610 D, the term “kitchen equipment” would also apply to permanently installed tools or implements for the kitchen such as sinks, faucets and garbage disposals when these items are permanently installed in a kitchen and are essential for use in the kitchen.1

For purposes of administrative consistency, china/vanity bowls, faucets and sinks that are not used in the kitchen (e.g., used in bathrooms, mud rooms, laundry rooms or other areas outside of the kitchen) may also be considered “kitchen equipment” for purposes of Va. Code § 58.1-610 D. Thus, if the Taxpayer satisfies the retailer criteria set out in Title 23 VAC 10­-210-410 G with respect to bowls, faucets or sinks installed in areas other than the kitchen, such items will constitute taxable sales requiring the collection of the sales tax on the sales price charged for such items, except tax does not apply to separately stated installation charges. If the Taxpayer does not satisfy the retailer criteria of Title 23 VAC 10-210-410 G with respect to bowls, faucets or sinks installed in areas other than the kitchen, such items will constitute items used or consumed by the Taxpayer. In such instances, the Taxpayer is liable for the sales or use tax on the cost price of such items.

I understand that the Taxpayer paid the tax as a consuming contractor on china/vanity bowls and sinks installed. According to the Taxpayer, the Department assessed an additional taxable measure of ******** on the china bowls and sinks as the difference between the cost price and sales price on such items. Because of the confusion with respect to the tax treatment accorded these items, I will remove this additional measure2 from the audit pursuant to Va. Code § 58.1-105 for this audit only regardless of whether such items were installed within or outside the kitchen. This adjustment, however, does not affect the Taxpayer's legal responsibility as a consuming contractor for the sales or use tax paid on the cost price of such items purchased during the audit period. Such tax paid is not refundable.

Starting from the conclusion of the audit and for the future, the Taxpayer is liable for the collection and remittance of the sales tax based on the sales price of sinks, faucets, china/vanity bowls and other kitchen equipment that it may furnish and permanently install in kitchens, bathrooms and other areas of a home or business when it satisfies the three criteria of the retailer definition for such items as set out in Title 23 VAC 10-210-410 G. When it does not satisfy such retailer criteria for sinks, faucets, china/vanity bowls or other kitchen equipment, the Taxpayer is considered a consuming contractor of such items that it installs and is thus liable for the tax on the cost price of such items.

CONCLUSION

Because the contested assessment is paid, a refund of the total overpaid amount will be issued as soon as practical. Refund interest will be applied to the overpaid amount in accordance with Va. Code § 58.1-1833.

The Code of Virginia sections, regulation and public documents cited are available on­line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,



Craig M. Burns
Tax Commissioner


AR/1-5301851977.R
1. Faucets and garbage disposals are not included in the audit but are added for instructional purposes to clarify the policy with respect to kitchen equipment. It is my understanding that the Taxpayer did not maintain an inventory of faucets and thus would not be deemed a retailer for purposes of Va. Code § 58.1-610 D when furnishing and installing such faucets. Rather, during the audit period, I understand that the Taxpayer accrued the tax as a consuming contractor of faucets that it furnished and installed them.
2. Tax of ***** (5% of *****) plus approximated assessed interest of ***** for a total overpayment amount of ***** will be refunded.

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46