December 19, 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 May 2020 through April 2023.
FACTS
An audit conducted on the Taxpayer, a Virginia dealer for the period at issue, resulted in an assessment for untaxed purchases. The Taxpayer filed an application for correction contending that two of the purchase exceptions listed in the sample and extrapolation calculations were purchases for resale and should be removed from the sample.
DETERMINATION
For retail sales and use tax purposes, Virginia Code § 58.1-610 provides that businesses that contract to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon are deemed to have purchased all tangible personal property for use or consumption in the performance of such contract. Tile 23 of the Virginia Administrative Code (VAC) 10-210-410 B provides that a consuming contractor who also sells tangible personal property at retail must obtain a certificate of registration and may purchase tangible personal property under a resale certificate if it knows at the time of purchase that the property will be resold.
The Taxpayer argues two transactions included in the sample were for the purchase of computer cabling and pulling line. In the first transaction, the Taxpayer purchased a quantity of computer cabling and pulling line. In the second transaction, only computer cabling was purchased.
The cabling from both transactions was purchased at the request of a customer who had the intent to purchase the cable from the Taxpayer immediately. The Taxpayer submitted documentation that substantiates the tax-free purchase of the cabling and pulling line as well as the collection and remittance of Virginia sales and use tax on the sale price of the computer cabling. In accordance with the regulation cited above, the Taxpayer was prohibited from purchasing inventory under a resale exemption certificate unless it knew at the time of purchase that the property would be resold. In this case, the cabling from each of the two contested transactions was purchased knowing the cabling would be immediately sold to a customer, retaining its status as tangible personal property, and not installed as part of a real property contract.
The pulling line was not used for a specific project; it was used across many projects and was not purchased at the specific request of the Taxpayer’s customer. The pulling line was not purchased to be resold, but to be used in the Taxpayer’s activities as a consuming contractor.
Based on this determination, the audit will be returned to the appropriate field audit staff for revision. The amounts for cabling on the two transactions will be removed from the sample. The exception amount for the pulling wire will remain in the sample. A revised audit report and an adjusted assessment will be mailed to the Taxpayer. The Taxpayer should remit payment of the balance due within 30 days of the date on the updated bill to avoid the accrual of additional interest or possible collection action.
The Code of Virginia section and regulation cited are available online at law.lis.virginia.gov. If you have any questions regarding the review of documentation, you may contact the auditor. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy and Legal Affairs, Sales Tax Adjudication, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/5016.Z