December 9, 2015
Re: Ruling Request: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request a ruling with respect to the application of the retail sales and use tax to modular homes in light of the new sales and use tax rates effective on and after July 1, 2013. I apologize for the delay in responding to your request.
FACTS
You pose a number of scenarios for discussion and ask that the Department's responses be framed in the context of the following nomenclature. "Virginia manufacturer" or "Virginia retailer" means a modular home business physically located in Virginia; "customer" means the person who purchases and thereafter resides in the modular home; and "region" means the Northern Virginia Region and the Hampton Roads Region as defined in Public Document (P.D.) 13-103 (6/13/13). For purposes of this ruling request, it is assumed that all Virginia manufacturers and Virginia retailers are correctly registered with the Department.
I would also note that the nomenclature used in this ruling will also have the following statutory meanings: "modular home" means a "modular building" as defined in Va. Code § 58.1-602, "Virginia manufacturer" or "out-of-state manufacturer" means a "modular building manufacturer" as defined in Va. Code § 58.1-602, and "Virginia retailer" or "out-of-state retailer" means a "modular building retailer" as defined in Va. Code § 58.1-602. In addition, other nomenclature used herein has the following meanings: "installation" means the set up and placement of a modular home onto a permanent foundation, and "retailer/contractor" means a business that sells modular homes with or without installation. For the scenarios presented herein, the retailer/contractor contracts with a Virginia customer to furnish and install a modular home. As such, the retailer/contractor serves as a contractor and, thus, becomes the one ultimately liable for the Virginia retail sales and use tax.
RULING
While the retail sales and use tax is generally imposed on 100% of the sales price of tangible personal property, Virginia Code § 58.1-610.1 allows the tax to be imposed on 60% of the retail sales price of a modular home that qualifies as a modular building as defined in Va. Code § 58.1-602. In addition, Va. Code § 58.1-602 specifically defines terms related to the modular housing industry, such as the terms "modular building," "modular building manufacturer," and "modular building retailer."
Effective on and after July 1, 2013, the state retail sales tax rate changed from 4% to 4.3%. However, the local retail sales tax rate of 1% remained the same. Thus, the new combined retail sales tax rate is 5.3% statewide. In addition, effective July 1, 2013, an additional state sales tax of 0.7% is imposed in the Northern Virginia and Hampton Roads regions. In those regions, the total retail sales and use tax rate is 6.0%. The affected localities subject to the additional state retail sales tax of 0.7% are defined in P.D. 13-103.
Scenario 1
In Scenario 1, a Virginia manufacturer, located in the region, sells modular home sections without installation to a Virginia retailer located in the region. The retailer contracts with a Virginia customer located in the region for the sale and installation of the modular home.
The tax application of Scenario 1 is as follows: Because the Virginia retailer contracts to provide real property construction services, the Virginia retailer is operating as a contractor and is deemed the taxable consumer pursuant to Va. Code § 58.1-610 A and thus liable for the Virginia retail sales and use tax. Because the Virginia manufacturer is registered to collect the Virginia sales tax, it should collect such tax from the retailer/contractor based on a tax rate of 6% applied to 60% of the retail sales price and remit such tax to the Department. See Va. Code § 58.1-610.1. For example, if the retail sales price of the modular home sections is $50,000.00, then sales tax in the amount of $1,800.00 [$50,000 x 60% x 6%] should be collected. If the manufacturer fails to collect such sales tax or the full amount of such tax, the retailer/contractor is liable for reporting and paying a 6% consumer use tax to the Department on 60% of the retail sales price of the modular home sections. In this scenario, the Virginia customer incurs no tax liability.
Scenario 2
In Scenario 2, a Virginia manufacturer, located in the region, sells modular home sections without installation to a Virginia retailer that is not located in the region. The retailer contracts with a Virginia customer located in the region for the sale and installation of the modular home.
The tax application of Scenario 2 is as follows: Because the Virginia retailer contracts to provide real property construction services, the Virginia retailer is operating as a contractor and is deemed the taxable consumer pursuant to Va. Code § 58.1-610 A and thus liable for
the Virginia retail sales and use tax. As such, the resale exemption is not applicable to the Virginia retailer/contractor. Based on the sourcing rules of P.D. 13-103, the Virginia manufacturer should collect sales tax of 6% on 60% of the retail sales price. If the manufacturer fails to collect such tax or the full amount of sales tax, the retailer/contractor is liable for reporting and paying a 6% consumer use tax to the Department on 60% of the retail sales price. In this scenario, the Virginia customer incurs no tax liability.
Scenario 3
In Scenario 3, a Virginia manufacturer, not located in the region, sells a modular home without installation to a Virginia retailer located in the region. The retailer contracts with a Virginia customer located in the region for the sale and installation of the modular home.
The tax application of Scenario 3 is as follows: Because the Virginia retailer contracts to provide real property construction services, the Virginia retailer is operating as a contractor and is deemed the taxable consumer pursuant to Va. Code § 58.1-610 A and thus liable for the Virginia retail sales and use tax. As such, the resale exemption is not applicable to the Virginia retailer/contractor. Based on the sourcing rules of P.D. 13-103, the Virginia manufacturer should collect sales tax of 5.3% on 60% of the retail sales price. If the manufacturer fails to collect such tax or the full amount of sales tax, the retailer/contractor is liable for reporting and paying a 5.3% consumer use tax to the Department on the 60% of the retail sales price. In this scenario, the Virginia customer incurs no tax liability.
Scenario 4
In Scenario 4, a Virginia manufacturer, not located in the region, sells a modular home without installation to a Virginia retailer not located in the region. The retailer contracts with a Virginia customer located in the region for the sale and installation of the modular home.
The tax application of Scenario 4 is the same as the tax application for Scenario 3.
Scenario 5
In Scenario 5, you ask what the answers to Questions 1 through 4 above would be if the Virginia customer was not located in the region.
The location of the Virginia customer has no effect on the application of the sales or use tax on the transactions in question because the transaction between the customer and the retailer is an exempt real property construction service transaction. The tax liability rests with the retailer/contractor as noted in the above four scenarios. The tax collection responsibility rests with the manufacturers noted in these four scenarios. Also see response provided for Scenario 11.
Scenario 6
In Scenario 6, an out-of-state manufacturer, not located in the region, sells a modular home without installation to a Virginia retailer located in the region. The retailer contracts with a Virginia customer in the region for the sale and installation of a modular home.
The tax application of Scenario 6 is as follows: "Out-of-state dealers who hold Certificates of Registration to collect the use tax from their customers must source sales into Virginia according to the city or county of destination. Sales shipped into the Northern Virginia or Hampton Roads regions are subject to the regional use tax." See P.D. 13-103. Provided the out-of-state manufacturer is registered with the Department for the collection of the Virginia use tax, it should collect a 6% use tax from the Virginia retailer/contractor for remittance to the Department.
If the out-of-state manufacturer is not registered to collect the Virginia use tax, then the Virginia retailer/contractor is responsible for reporting and remitting a consumer use tax of 6% on 60% of the retail sales price of the modular home.
Scenario 7
In Scenario 7, an out-of-state manufacturer, not located in the region, sells a modular home without installation to a Virginia retailer not located in the region. The retailer contracts with a Virginia customer in the region for the sale and installation of a modular home.
The tax application of Scenario 7 is as follows: If the out-of-state manufacturer ships the modular home to the Virginia retailer at a location outside of the region, it should collect a 5.3% tax from the Virginia retailer/contractor for remittance to the Department. If the out-of-state manufacturer ships the modular home directly to the job site within the region, it should collect a 6% tax from the Virginia retailer/contractor for remittance to the Department.
If the out-of-state manufacturer is not registered to collect the Virginia use tax, then the Virginia retailer/contractor is liable for the consumer use tax either at the 5.3% or 6% tax rate depending upon whether the modular home is delivered to it outside the region or to the job site within the region. In these instances, the retailer/contractor is expected to report and remit the correct amount of tax to the Department as computed on 60% of the retail sales price of the modular home.
Scenario 8
In Scenario 8, an out-of-state manufacturer, not located in the region, sells a modular home without installation to an out-of-state retailer not located in the region. The retailer contracts with a Virginia customer in the region for the sale and installation of a modular home.
The tax application of Scenario 8 is as follows: If the out-of-state manufacturer delivers the modular home to the out-of-state retailer/contractor at a job site within the region, it should collect a 6% use tax from such retailer/contractor for remittance to the Department. If the out-of-state manufacturer ships the modular home to the out-of-state retailer at a location outside the region but in Virginia, it should collect a 5.3% use tax for remittance to the Department.
If the out-of-state manufacturer ships the modular home to the out-of-state retailer/contractor at a location outside of Virginia, it would not collect any Virginia use tax from the out-of-state retailer since delivery was not made in Virginia. However, when the out-of-state retailer/contractor ships the modular home from its out-of-state location into the region, it becomes directly liable for remitting and reporting a Virginia consumer use tax of 6% on 60% of the cost price of the modular home as a real property contractor. See Va. Code § 58.1-610. If the other state legitimately imposes its sales tax on such transaction, Va. Code § 58.1-611 allows a nonrefundable credit for such tax paid to the other state to be applied against the Virginia use tax due. If the amount of tax paid to the other state exceeds the amount of tax owed to Virginia, then no tax is actually payable to Virginia. If the amount of tax paid to the other state is less than the amount of tax owed to Virginia, then the difference between the two tax amounts is owed to Virginia.
Scenario 9
In Scenario 9, a Virginia manufacturer, located in the region sells a modular home without installation to an out-of-state retailer not located in the region. The retailer contracts with a Virginia customer in the region for the sale and installation of a modular home.
The tax application of Scenario 9 is as follows: Based on the sales tax sourcing rules set out in P.D. 13-103, the Virginia manufacturer should collect from the out-of-state retailer/contractor a 6% sales tax computed on 60% of the retail sales price of the modular home. If the manufacturer fails to collect such tax, such retailer/contractor is liable for reporting and paying a 6% Virginia consumer use tax.
Scenario 10
In Scenario 10, a Virginia manufacturer, not located in the region sells a modular home without installation to an out-of-state retailer not located in the region. The retailer contracts with a Virginia customer in the region for the sale and installation of a modular home.
The tax application of Scenario 10 is as follows: Based on the sales tax sourcing rules set out in P.D. 13-103, the Virginia manufacturer should collect from the retailer/contractor a 5.3% sales tax computed on 60% of the retail sales price of the modular home. If the manufacturer fails to collect such tax, the out-of-state retailer/contractor is liable for reporting and paying the 5.3% Virginia consumer use tax.
Scenario 11
In Scenario 11, you ask for answers to Scenarios 6 through 10 above if the Virginia customer was not located in the region.
As indicated in the sales tax sourcing rules of P.D. 13-103, the tax collection rules differ depending upon whether the retail dealer (such as a manufacturer in any of these scenarios) is located in Virginia or outside of Virginia. According to the section "Use Tax Collected by Dealers" set out in P.D. 13-103, out-of-state dealers who hold certificates of registration to collect the use tax from their customers must source sales into Virginia according to the city or county of destination. Thus, if delivery of a modular home is to a Virginia job site outside the region, an out-of-state manufacturer (if registered to collect the Virginia use tax) would collect a 5.3% use tax from the retailer/contractor. Based on the sales tax sourcing rules of P.D. 13-103, in-state dealers should collect the regional sales tax on sales made in places of business located in the Northern Virginia and Hampton Roads regions, even if the goods are delivered outside such regions. Thus, if a Virginia manufacturer located in the region sells and delivers a modular home to a Virginia location outside the region, it would collect a 6% sales tax from the retailer/contractor. See Example 2 of P.D. 13-103. If a Virginia manufacturer located outside of the region sells and delivers a modular home to a Virginia location outside or within the region, it would collect a 5.3% sales tax from the retailer/contractor.
Transitional Provisions
You have not presented a scenario involving transitional provisions, e.g., no question was asked about the tax application for modular building transactions entered into before July 1, 2013 but not completed until after such date. The transitional rules are explained in P.D. 13-103 and apply to the retail sale of modular buildings.
CONCLUSION
The responses in this letter are based on the facts provided and as summarized. Any change in the facts or the introduction of new facts regarding any scenario may lead to a different result in the response to that scenario. If you have any questions about this ruling, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5488773333.R