Tax Type
Retail Sales and Use Tax
Description
Provides installation, repair and construction services for financial institutions.
Topic
Clarification
Classification
Exemptions
Property Subject to Tax
Taxable Transactions
Date Issued
04-30-2014
April 30, 2014
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request a ruling on behalf on an unidentified client (the "Taxpayer") with respect to the application of the retail sales and use tax to certain construction, installation and repair contracts. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer provides installation, repair and construction services primarily for financial institutions. It typically engages in three types of contracts: (1) installation of automated teller machines ("ATMs") as a subcontractor or general contractor, (2) repair services, and (3) construction services performed for new construction, enhancements, or remodeling.
For each contract type, I have stated below the facts presented, the Taxpayer's questions, and my response to such questions. The Taxpayer also asks a question about delivery charges, which is set out below in a similar manner.
RULING
Type One Contracts
Facts. Under a Type One contract, the Taxpayer removes and disposes of the existing kiosk, removes and replaces the existing ATM, moves existing conduits, provides a 30 amp circuit and connects it to the new ATM, removes and replaces bollards (i.e., vertical pipes used as vehicle barriers to protect the ATM and building), pours a concrete island to accommodate a new ATM, repairs holes for abandoned pneumatic tubes, supplies and installs the topper (i.e., an accessory that attaches to the top of the ATM and generally used for branding and/or storage purposes), and cleans the site. The price charged by the Taxpayer includes labor and materials. The Taxpayer does not sell the ATMs but only installs them. In these contracts, the Taxpayer is pouring the concrete islands and affixing the ATM, electrical conduits, circuits, bollards, and other materials to real property.
Questions. Are Taxpayer's sales under Type One contracts considered construction services? If so, what are the Virginia sales tax rules applicable to Taxpayer's transactions under Type One contracts?
Response. Prior to July 1, 2011, the Department treated ATM installations as either the sale of tangible personal property if freestanding or the sale of construction services if permanently affixed to a constructed opening in the realty, such as in an outdoor wall of a bank building. See Public Document (P.D.) 91-166 (8/7/91). The Department has not previously ruled on whether an ATM attached to a concrete island at the bank building site remains tangible personal property or becomes part of the realty. Notwithstanding, the Tax Commissioner stated in P.D. 91-166 that it was apparent based on the constructed opening of the bank building that the intent was to permanently maintain an ATM in the space provided. Similarly, it is apparent based on the removal and replacement of an ATM in the Taxpayer's Type One contracts that the intent is to permanently maintain an ATM in the space provided. Accordingly, it is my opinion that an ATM installed pursuant to Type One contracts becomes part of the real estate. In these instances, the Taxpayer is liable for the tax on the cost price of all installation materials.
Effective on and after July 1, 2011, however, businesses primarily engaged in the furnishing and installation of ATMs and tangible personal property that provides electronic or physical security on real property used by financial institutions will be treated as retailers of such property for the purpose of the retail sales and use tax. See Va. Code § 58.1-610 G. As a retailer, each business is required to collect the tax from purchasers, rather than paying the tax on its purchases of the material, even in situations in which the property is installed on real estate that is not for the use of a financial institution. Qualifying businesses must, therefore, give their suppliers a resale exemption certificate (Form ST-10) when making purchases of items for resale. For more information on the change, see House Bill 1524 of the 2011 session of the General Assembly.
Type Two Contracts
Facts. Under Type Two contracts, the Taxpayer provides installation labor to replace signage on the ATM surrounds (i.e., coverings that enclose all sides of the ATM) at various locations for its customers. For example, if the customer merges with another financial institution, or updates its logo or signage, the Taxpayer typically provides the following services:
- Site surveys to review labor and material needs for replacing the signs on ATM surrounds,
- Installation labor to replace signs on ATM surrounds, and
- Out of scope fees or miscellaneous services to replace signs on ATM surrounds, such as charges for patching or filling in holes not used for the new signage or patching damage to the property left from removing the old signage.
In such contracts, the Taxpayer is typically installing signage to an existing ATM's surrounds, which may be affixed to real property, or may be free-standing.
Questions. Are Taxpayer's sales under Type Two contracts considered installation services? If so, what are the Virginia sales tax rules applicable to Taxpayer's transactions under Type Two contracts?
Response. Based on the facts provided, it appears that the Taxpayer does not furnish the signs. Rather, it appears that the Taxpayer may only be furnishing patching materials. If this is correct, the Taxpayer's transaction is for the provision of exempt services.
In the event the Taxpayer furnishes manufactured signs, the Taxpayer would be liable for the collection of the Virginia sales tax on the retail sales price charged for such signs. Separately stated installation would not be taxable. For more information on manufactured signs, see House Bill 2774 passed by the 2005 General Assembly and the accompanying impact statement that explains the law change for manufactured signs. Such house bill and impact statement may be found by a search in the Legislative Information System of the Virginia General Assembly's website located at virginiageneralassembly.gov.
Type Three Contracts
Facts. The Taxpayer typically provides repair labor to fix ATM topper strut brackets and re-attach the bolt or screw to the ATM topper.
Questions. Are Taxpayer's sales under Type Three contracts considered repair services? If so, what are the Virginia sales tax rules applicable to Taxpayer's transactions under Type Three contracts?
Response. Virginia Code § 58.1-609.5 1 provides an exemption from the sales and use tax for services rendered by repairmen for which a separate charge is made. Virginia Code § 58.1-609.5 2 also provides an exemption from the tax for an amount separately charged for labor or services rendered in repairing property sold. Accordingly, a separate labor charge for repairing a freestanding ATM or repairing any ATM on or after July 1, 2011 will be exempt of the tax. In these instances, the Taxpayer should be registered to collect the sales tax on any repair parts transferred to customers. For more information on repair businesses, see Title 23 Virginia Administrative Code (VAC) 10-210-3050.
For repairs made to ATMs that are permanently affixed to real property, such as repairs performed prior to July 1, 2011 on non-freestanding ATMs, the entire charge is nontaxable in accordance with the real property contractor provisions of Va. Code § 58.1-610. In such instances, the Taxpayer is deemed the taxable user or consumer of all tangible personal property used to repair real property and does not pass on the tax to the customer as a tax. For more information, see Title 23 VAC 10-210-410.
Delivery Charges
Facts. The Taxpayer charges to deliver the customer's equipment to a location from its warehouse. If the customer is renovating a location, or moving ATMs from one location to another, the Taxpayer may store the ATMs in a warehouse and subsequently deliver the equipment to a location per the customer's directive. The Taxpayer charges a delivery fee for the transportation of the customer's own equipment to the customer's location.
Question. Are Taxpayer's delivery charges subject to Virginia sales and use
tax?
Response. It appears that the Taxpayer does not sell the ATM. As such, a charge made for the delivery of the ATM to the installation site is not subject to the tax. If there is no retail sale of tangible personal property, a charge for moving ATMs from one location to another for reinstallation is not taxable. See Va. Code § 58.1-609.5 1. Also see the relocation and installation charges addressed by P.D. 98-26 (2/13/98).
Should the Taxpayer primarily engage in furnishing and installing ATMs in real property for the use of financial institutions on or after July 1, 2011, it will need to collect and remit the sales tax on the ATM charge but not on separately stated delivery charges. See Va. Code § 58.1-609.5 3 and Title 23 VAC 10-210-6000.
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.
The Code of Virginia sections, regulations and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. As previously stated, the impact statements for House Bill 1524 and House Bill 2774 may be found in the Legislative Information System at virginiageneralassembly.gov. If you have any questions about this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-4800528303.R
Rulings of the Tax Commissioner