June 30, 2015
Re: § 58.1-1821 Application: 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 July 2004through March 2007. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a retailer of home improvement products and other items. The Taxpayer is also engaged as a licensed Virginia contractor with respect to real estate. An audit resulted in the assessment of sales tax on certain untaxed sales. The audit also resulted in the assessment of consumer use tax on untaxed purchases of tangible personal property.
The Taxpayer takes exception to the sales tax assessed on certain sales and maintains that the tax does not apply. The Taxpayer also takes exception to the use tax assessed on certain purchases of fixed assets and maintains credit should be given in the audit for valid tax payments made to another state.
DETERMINATION
Installed Sales
Cabinets, countertops and vanity tops. The Taxpayer stocks standard cabinets, countertops and vanity tops that customers may buy off the shelf without special ordering or installation services. The Taxpayer also offers several lines of custom cabinets, countertops and vanity tops that must be special ordered. The Taxpayer contends that custom cabinets, countertops and vanity tops that it installed should be removed from the audit. Because it does not maintain an inventory of such custom-made items, the Taxpayer asserts that the sale and installation of such items cannot be treated as retail sales subject to the special regulation set out in subsection G of Title 23 of the Virginia Administrative Code (VAC) 10-210-410.
For purposes of subsection G of Title 23 VAC 10-210-410, a retailer is defined to mean "any person who maintains a retail or wholesale place of business, an inventory of the aforementioned items [e.g., cabinets] 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." The Taxpayer estimates that it installs 1% of the standard cabinets sold and 99% of the custom cabinets sold. As such, virtually all of the standard cabinets are sold without installation.
Based on the above percentages, the Taxpayer is a retailer of standard cabinets, countertops and vanity tops but is a contractor of custom cabinets, countertops and vanity tops. Accordingly, all custom cabinets, countertops and vanity tops included in the audit as installed retail sales will be removed from the audit.
Doors and windows. The Taxpayer contends that many contested sale items are not like or comparable to the products listed in the contractor statute, i.e., Va. Code § 58.1-610 D. For instance, the Taxpayer contends that entry doors, interior doors, pet doors, patio doors, shower doors, bathroom doors, garage doors and windows are not like or comparable to storm windows and storm doors that are an addition to an existing window or door. The contested doors and windows are replacement doors and windows and thus do not constitute an addition to an existing door or window. To support its contention, the Taxpayer cites Public Document (P.D.) 88-133 (6/14/88). Based on these facts and the cited public document, I agree that the contested doors and windows are not like or comparable to storm windows or storm doors. The special regulation cited above does not apply to all doors and windows but only to storm doors and storm windows. Accordingly, the entry doors, interior doors, pet doors, patio doors, shower doors, bathroom doors, garage doors and windows included as installed retail sales in the audit will be removed from the audit.
When installation labor is furnished by the Taxpayer or the Taxpayer contracts to provide the installation labor, regardless of whether it uses its employees to perform the installation or hires a subcontractor to install the contested items, the Taxpayer is liable for the tax on the cost price of construction materials and should not charge a sales tax to its customers in these instances. Rather, the Taxpayer is liable for the sales or use tax on the cost price of the doors, windows and related materials and should take the tax into consideration when bidding on a job or when a customer requests the installation of such items that do not fall within the special regulation of Title 23 VAC 10-210-410 G.
Countertops and vanity tops. The Taxpayer contends that the countertops and vanity tops included in the audit as installed sales are not like or comparable to the products listed in Va. Code § 58.1-610 D. Furthermore, while subsection D of Va. Code § 58.1-610 was amended effective on and after July 1, 2010 to include countertops, the Department had issued determinations prior to such date that countertop installations did not fall under the special provisions of subsection D of Va. Code § 58.1-610. See P.D. 09-102 (7/24/09). Based on these facts and the fact that the audit period predates the law change for countertops, the standard countertops and vanity tops included in the audit as installed retail sales will be removed from the audit.
Garbage disposals, kitchen faucets and kitchen sinks. The Taxpayer has correctly indicated that there has been some confusion in the classification of these items as noted in P.D. 13-177 (10/10/13). The Taxpayer asserts that it remitted use tax on these contested items installed during the audit period. For these reasons and the fact that the Taxpayer's audit period predates the issuance of P.D. 13-177 and the audit period at issue in P.D. 13-177, I will extend to the Taxpayer the same treatment as the taxpayer in P.D. 13177 and remove these items from the audit.
Roofing and Vinyl Siding. The Taxpayer contends that roofing and vinyl siding are not like or comparable to the items listed in subsection D of Va. Code § 58.1-610. I agree that subsection D of Va. Code § 58.1-610 does not apply to roofing and vinyl siding materials. I understand that the Taxpayer performs roofing and siding services as part of its installation contract services. Accordingly, these items should not have been treated as installed retail sales of tangible personal property and will be removed from the audit.
Vinyl flooring, hardwood flooring and tile flooring. The Taxpayer contends that the audit erroneously included items that are not like or similar to floor coverings, which are subject to the special provisions of subsection D of Va. Code § 58.1-610 and subsection G of Title 23 VAC 10-210-410. Such regulation specifically states the following:
"Floor coverings" (as distinguished from the floors themselves) include rugs, mats, padding, wall-to-wall carpets when installed by the tack strip or stretch-in methods, and other floor coverings which are not glued, cemented, or otherwise permanently attached to the floor below. Persons selling and installing floor coverings which become permanently attached to floors are deemed to be using or consuming contractors with respect to such items. Such floor coverings include carpet, wood block, cork, tile, linoleum, and vinyl floor coverings when glued, cemented or otherwise permanently attached to floors or plywood and concrete subflooring.
I understand that the vinyl flooring, hardwood flooring and tile flooring installed by the Taxpayer are permanently attached to floors. As such, the Taxpayer is considered a consuming contractor of such items. Based on the above cited regulation, I find that the vinyl flooring, hardwood flooring and tile flooring should not have been assessed as installed retail sales and will be removed from the audit.
Water heaters. The Taxpayer contends that the audit erroneously included water heaters as like or similar to the items listed in subsection D of Va. Code § 58.1-610. The Taxpayer cites P.D. 99-49 (4/6/99) as authority to treat a water heater installation as a real property improvement rather than as a retail sale of tangible personal property. I agree that the installation of a water heater is a real property improvement not subject to the retailer provisions of subsection D of Va. Code § 58.1-610. As such, the water heaters should not have been assessed as installed retail sales and will be removed from the audit.
Garage door openers, toilets, wall tile, plumbing fixtures and gas ranges. The Taxpayer contends that the audit erroneously included garage door openers, toilets, wall tile, plumbing fixtures and gas ranges as like or similar to the items listed in subsection D of Va. Code § 58.1-610. The Taxpayer indicates that all of these items are permanently attached to the real property. In regard to garage door openers, toilets, wall tile and plumbing fixtures, I find that such items are not subject to the retailer provisions of subsection D of Va. Code § 58.1-610. As such, these items should not have been assessed as installed retail sales and will be removed from the audit.
In regard to gas ranges, I would note that P.D. 07-108 (7/6/07) lists stoves and ovens as kitchen equipment for purposes of subsection D of Va. Code § 58.1-610. Such ruling was not issued until July 6, 2007, which is a few months after the Taxpayer's audit period. The same items are referenced again in P.D. 13-177, which states that "the term 'kitchen equipment' would typically include stovetops, built-in ovens, built-in microwave ovens, under-the counter dishwashers and ranges." I would also note that the common definition of the term "range" is "[a] cooking stove with an oven and a number of separate burners or heating units." Webster's 11 New College Dictionary, p. 917 (1995). Accordingly, I would treat a gas range as subject to the special provisions of subsection D of Va. Code § 58.1-610. Notwithstanding the foregoing and because of insufficient clarity regarding the tax treatment of installed gas ranges during the Taxpayer's audit period, I will allow the installed gas ranges, which were included in the audit as installed retail sales, to be removed from the audit for this audit only.
Request for Tax Credit
The Taxpayer contends that certain fixed asset purchases that are subject to retail sales and use taxation by Virginia are entitled to a tax credit, pursuant to Va. Code § 58.1611, against the Virginia tax for use tax validly paid to another state. In these instances, the Taxpayer indicates that it initially took possession of the assets in another state and remitted the appropriate tax to such other state. I understand that such assets were shipped from another state to the Taxpayer in a different state where the assets were temporarily stored and subsequently shipped to Virginia for use in Virginia.
Based on these facts, it appears that the initial receiving state of the fixed assets has the first right of use taxation of the assets in question. If the Taxpayer's evidence establishes these facts, then a tax credit for the taxes paid to the other state may be granted against the tax owed to Virginia in accordance with Title 23 VAC 10-210-450. Subsection A of this regulation states, "This credit does not apply to tax erroneously charged or incorrectly paid to another state." Accordingly, the auditor will contact the Taxpayer within 30 days of the date of this letter to set up an appointment for the review of the information regarding the credit request. Based on such review, the auditor will provide the appropriate tax credits in the audit as warranted.
CONCLUSION
The audit will be revised in accordance with this determination. A revised bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges. The Taxpayer should remit its payment to: Virginia Department of Taxation, 600 East Main Street, 23rd Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
Please note that failure to remit full payment within the 30-day period may result in the imposition of an additional 20% penalty on the tax due under the terms of Virginia's Amnesty Program. See the enclosure entitled "Important Payment Information."
The Code of Virginia sections, regulations and public documents 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, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5725645799.R