Tax Type
Retail Sales and Use Tax
Description
Consumer of the purchases at issue and is liable for tax government exemption does not apply
Topic
Computation of Tax
Exemptions
Government Contractor
Taxable Transactions
Date Issued
06-10-2014
June 10, 2014
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 seek correction of the retail sales and use tax assessment issued for the period February 2007 through June 2013. The bill at issue has been paid in full. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a general contractor. The Taxpayer is contesting the assessment of tax on purchases made with respect to a contract the Taxpayer entered into with the ***** (the "federal agency"). The Taxpayer states that the entire assessment is related to the work done under this contract. The Taxpayer maintains that it was issued an exemption certificate by the federal agency that specifically stated the work executed under the contract is not subject to the tax. The Taxpayer states that the amount assessed represents a significant portion of its operations budget and payment of the assessed liability without reimbursement will be an undue burden on the Taxpayer.
The contract at issue is described as:
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- An Indefinite Delivery/Indefinite Quantity (IDIQ) open-ended supply contract to acquire modular facilities as required, and all ancillary work including, but not limited to module design, fabrication, installation and installation of interior and exterior finishes. At the discretion of the Contracting Officer, this contract may also include site design, all site work, utility connections, parking, playgrounds and fencing, at various Department of Defense installations.
The contract further provides that the modular facilities at issue will be used as child development centers.
DETERMINATION
Government Exemption
Virginia Code § 58.1-609.1 4 states, in pertinent part, that the retail sales and use tax does not apply to "Tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States."
In accordance with Va. Code § 58.1-609.1 4, the retail sales and use tax is not applicable to the sale of tangible personal property to government entities. Additionally, purchases of tangible personal property for resale to government entities can be made exempt of the tax using Form ST-10 (resale exemption certificate). Sales made for use in the performance of real property construction contracts are not sales of tangible personal property as considered in the aforementioned authority.
Real Property Construction/Modular Building
Virginia Code § 58.1-610 A states, that:
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- Any person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption. Any sale, distribution, or lease to or storage for such person shall be deemed a sale, distribution, or lease to or storage for the ultimate consumer and not for resale, and the dealer making the sale, distribution, or lease to or storage for such person shall be obligated to collect the tax to the extent required by this chapter.
Title 23 of the Virginia Administrative Code (VAC) 10-210-410 A provides:
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- A contractor is defined as any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon, including highways, and in connection therewith to furnish tangible personal property, whether such person be a prime contractor or subcontractor. Unless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.
Title 23 VAC 10-210-410 J provides:
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- Generally, purchases of tangible personal property by contractors in connection with real property construction contracts with the governments of Virginia or the United States or political subdivisions thereof, are sales to such contractors for their own use or consumption and contractors are subject to the tax on such transactions. This applies regardless of whether title to such property passes directly to the governmental entity upon purchase by the contractor or if the contractor is reimbursed directly by the government entity for the cost of such property.
Virginia Code § 58.1-610.1 states that:
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- The retail sale of a modular building, as defined by § 58.1-602, by a modular building manufacturer or modular building retailer, as defined by § 58.1-602, shall be subject to the tax authorized by this chapter upon sixty percent of the retail sales price. If the modular building manufacturer has paid such tax on the cost price of materials incorporated in a modular building that has been constructed for sale without installation, it may credit against the tax shown to be due on the return the amount of sales or use tax paid on the cost of materials used in fabricating such a modular building.
As defined in Va. Code § 58.1-602 modular building means, but shall not be limited to:
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- 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.).
The Tax Commissioner has previously addressed the sale of modular buildings to a military entity in Public Document 07-47 (4/26/07). In that case, the taxpayer was a construction company located outside of Virginia that entered into a contract with the U.S. Navy to build modular duplexes to be located on a Virginia military installation. The taxpayer planned to purchase the duplexes from a Virginia vendor and requested a ruling regarding the application of the Virginia retail sales and use tax. The Tax Commissioner addressed the application of the tax in the instance when the taxpayer installed the modular duplexes and also when the vendor installed the duplexes. The Tax Commissioner also pointed out that although modular buildings are subject to a reduced taxable base using 60% of the retail sales price, site work materials are fully taxable at 100% of the retail sales price of such materials.
In performance of the contract at issue, the Taxpayer purchased modular buildings from the vendor and installed them on military installations. In accordance with Va. Code § 58.1-610 A and Title 23 VAC 10-210-410 A, the Taxpayer is a contractor with respect to real property. As such, the Taxpayer is the consumer of the purchases at issue and is liable for the tax on such purchases. The government exemption does not apply in this instance because the purchases by the Taxpayer are related to real property construction. The Taxpayer should have remitted tax to the vendor at the time the purchases were made, or the Taxpayer should have accrued tax and remitted such tax to the Department. Accordingly, the assessment is correct as issued.
Financial Hardship
Virginia Code § 58.1-105 B authorizes the Tax Commissioner to compromise and settle tax liability of doubtful collectibility. The Taxpayer indicates that paying the full amount of the assessment will cause a financial burden. As such, the Taxpayer may wish to request an offer in compromise based on doubtful collectibility. The Taxpayer must present evidence of doubtful collectibility to support a claim of financial hardship. If the Taxpayer wishes to pursue a settlement based on doubtful collectibility, please complete and return the enclosed Offer in Compromise Business Request For Settlement and Financial Information Statement For Businesses forms. These forms will allow the Department to review and analyze the Taxpayer's financial situation. Upon completion of the Department's review, a response will be issued based upon the information provided. The completed forms should be sent to: Tax Commissioner, Virginia Department of Taxation, Attn: CICT, P.O. Box 2475, Richmond, VA 232182475. You may also fax the forms to (804) 786-2645. If the Department does not receive the completed forms within 30 days of the date of this letter, it will be presumed that the Taxpayer will not submit an offer in compromise based upon doubtful collectibility.
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. 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,
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Craig M. Burns
Tax Commissioner
AR/1-5498742467.P
Rulings of the Tax Commissioner