Rulings of the Tax Commissioner

December 12, 2024

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 January 2020 through December 2022.

FACTS

The Taxpayer, a sign manufacturing and installation business in Virginia, was audited for the period at issue. As a result of the audit, tax and interest was assessed for untaxed sales of manufactured signs. The Taxpayer filed an application for correction contending that the business is acting as a consuming contractor and is not subject to sales tax on its sales of manufactured signs. Further, the Taxpayer contends that two of the transactions during the audit period were made to churches.

DETERMINATION

Manufactured Signs

The Taxpayer argues that tax is not applicable to a charge for constructing and installing a sign which that becomes attached to realty and that the business constructing and installing such sign must pay the tax on all property used in the construction and installation. 

The auditor assessed tax on the sales of manufactured signs because they are included in the definition of “tangible personal property” under Virginia Code § 58.1-602. 

The Taxpayer cites Public Document (P.D.) 96-133 (6/14/1996) and argues the definition in Virginia Code § 58.1-602 merely changes the classification of the property but does not change the nature of signs that become a permanent part of real estate. In 2005, the Virginia General Assembly amended the law resulting in the treatment of manufactured signs as tangible personal property. See the 2005 Legislative Summary published as P.D. 05-101 (6/30/2005). The intent of the law change was to treat a transaction for the sale and installation of a manufactured sign as a sale of tangible personal property regardless of the fact that the sign may be attached to or become part of real property. See P.D. 12-70 (5/03/2012). As a result, a sign manufacturer would be required to register for the collection and remittance of the retail sales tax based on the sales price of the manufactured signs sold at retail. Separately stated installation charges would be exempt from the tax pursuant to Virginia Code § 58.1-609.5 2.

Further, Title 23 of the Virginia Administrative Code (VAC) 10-210-410 A states ”[u]nless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to the contractor or by the contractor in connection with real property construction, reconstruction, installation, repair, and similar contracts.” [Emphasis added]. This regulation implies that other statutes and regulations may apply to a business’ sales and use tax responsibilities and requirements. The amendment to Virginia law and the caveat in 23 VAC 10-210-410 fulfill the legislative intent concerning the treatment of sign manufacturers for sales and use tax purposes.

Church Exemptions

In its application for correction, the Taxpayer contends that the sales of manufactured signs to churches are “an integral part of the Church’s mission and are not subject to tax.” Virginia Code § 58.1-609.10 16, provides, in pertinent part, that the retail sales and use tax does not apply to “[t]angible personal property purchased by nonprofit churches . . . for use (i) in religious worship services by a congregation or church membership while meeting together in a single location and (ii) in the libraries, offices, meeting or counseling rooms or other rooms in the public church buildings used in carrying out the work of the church and its related ministries, including kindergarten, elementary and secondary schools.”

The Virginia courts have consistently held that exemptions from the tax must be strictly construed and where there is any doubt, that the doubt must be resolved against the person claiming the exemption. See Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155 (1973) and Golden Skillet Corp. v. Commonwealth, 214 Va. 276 (1972).

In P.D. 20-168 (9/22/2020), the Department has addressed the issue of selling manufactured signs to churches. The ruling concluded that a manufactured sign is not used for religious worship services or for carrying out the work of the church. See also Title 23 VAC 10-210-310.

Similarly, no evidence has been provided to indicate the signs sold by the Taxpayer were used in religious worship services by a congregation or church membership while meeting or in sanctuaries, libraries, offices, meeting or counseling rooms, or other rooms in the public church buildings where the work of the church and its related ministries was carried out. 

Manufactured signs do not fit into the governing principle that for any church purchase to be exempt of tax, it must be related to carrying out the work of the church and its related ministries. As such, the Taxpayer’s sales to nonprofit churches do not qualify for the exemption. 

CONCLUSION

Based on this determination, the assessment is correct. A revised bill, with interest accrued to date will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid withing thirty days of the date of the bill.

In its application for correction, the Taxpayer’s argument that proper exemption certificates for the sale of manufactured signs to churches submitted to the auditor during the audit examination is irrelevant. 

As a Virginia dealer, the Taxpayer is responsible for inspection of exemption certificates from customers at the time of the transaction. Items included in the proper inspection are completeness of the document, and verification that items being sold to customers meet the exact wording of the certificate. The sale of manufactured signs to churches do not meet these standards in this case.

The Taxpayer argues that no public announcement about the General Assembly’s change in Virginia’s treatment of manufactured signs has been made. As indicated earlier, the Department publicly announced the law change in its 2005 Legislative Summary. In addition, the Department provides resources to all taxpayers regarding changes to statute and regulations, all available on the Department’s website. It is the responsibility of the taxpayer to stay current on all changes to Virginia Code and regulations that may affect their tax responsibilities.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****@tax.virginia.gov.

Sincerely,

James J. Alex
Tax Commissioner
Commonwealth of Virginia