August 25, 2015
Dear *****:
This is in response to your letter in which you submitted a protective claim for refund of use taxes remitted to the Department of Taxation (the "Department") for the period January 1, 2010 through June 30, 2013 on behalf of ***** (the "Taxpayer"). The Taxpayer contests the use tax assessment on furniture, fixtures, and equipment procured in order to fulfill a contract with the federal government.
FACTS
The Taxpayer entered into a real property contract with a federal government agency ("the Agency") to design and construct several buildings. An add-on provision to the contract allowed for the acquisition of $3 million in freestanding office furniture, fixtures and equipment ("FFE") that would remain permanently unattached to the buildings. On the Agency's directive, the Taxpayer purchased the FFE exempt of the sales and use tax using a resale exemption certificate, Form ST-10, and subsequently resold the equipment to the government tax free.
On audit, the Department deemed the Taxpayer the taxable final user and consumer of the FFE pursuant to 23VAC10-210-693(H), and assessed use tax in the amount of ***** plus interest of *****. The Taxpayer filed a protective claim with the Tax Commissioner pursuant to Va. Code § 58.1-1824, asserting that a previously issued ruling with materially similar facts, Public Document ("P.D.") 14-91 (June 12, 2014) provided the proper interpretation of the law, and should have controlled in this case.
DETERMINATION
Public Document 14-91 involved a real property construction contract with a federal government agency that was nearly identical to this case. In P.D. 14-91, based upon Va. Code § 58.1-610, the Tax Commissioner concluded that a real property contractor could purchase furniture and other freestanding items provided in connection with the construction of real property exempt of the sales and use tax using the sale for resale exemption certificate, Form ST-10.
Given the similarities to the facts in P.D. 14-91, the Department should have allowed the Taxpayer in this case to purchase the freestanding FFE procured in connection with the real property contract exempt of the sales and use tax, using a resale exemption certificate, Form ST-10. Likewise, the subsequent sale to the Agency should have been exempt pursuant to Va. Code § 58.1-609.1(4), as set out in P.D. 14-91. Please note that the resale exemption does not extend to any construction materials or other tangible personal property that will be incorporated into the property.
CONCLUSION
Accordingly, the portion of the contested use tax assessment related to the FFE will be returned to the auditor for adjustment and the Taxpayer will receive a refund of tax, penalty, and interest paid with respect to these items, plus refund interest accrued to date.
The Public Document and Code of Virginia sections cited, along with other reference documents, are available online at www.tax.viroinia.gov in the Laws, Rules & Decisions section of the Department's website. If you have any questions about this response, you may contact **** in ***** the Department's Policy Development Division.
Sincerely,
Craig M. Burns
Tax Commissioner