Tax Type
Retail Sales and Use Tax
Description
Purchases made by adult home and provided to construction contractor
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
07-18-1984
July 18, 1984
Re: Request for Ruling/Sales and Use Tax
Dear ****
This will refer to your letter of May 16, 1984 and a meeting between your client and representatives of the department on June 29, 1984 in which the applicability of the sales and use tax to ************ and its construction contractor, ************** was discussed.
FACTS
***** (hereinafter *****) is a non-stock nonprofit corporation organized to construct and operate a home for adults in *****. The facility to be constructed by ***** has been determined by the state Department of Social Services to be subject to licensure as a home for adults.
***** requests a ruling that it may purchase tangible personal property exclusive of the tax under the provisions of § 58-441.6(t) of the Code of Virginia and that it may designate its construction contractor, ***** (hereinafter *****) as its agent to make tax exempt purchases of building and other materials.
RULING
§ 58-441.6(t) of the Code of Virginia provides an exemption from the sales and use tax for "[t]angible personal property for use or consumption by...a licensed nonprofit nonstock home for adults as defined by (Virginia Code) § 63.1-172". Inasmuch as ***** is presently subject to licensure as a "home for adults" by the state Department of Social Services, I find basis for permitting the corporation to purchase tangible personal property exclusive of the sales and use tax upon the condition that ***** remit the use tax on any such items purchased in the event that licensure is not obtained.
Based upon the description contained in your letter, I find the proposed agreement between ********** and ************ to be indicative of conferral of agency status from principal to contractor. The agreement proposed in your letter would bind the credit of ************ with respect to all purchases made by ******* on its behalf. However, I must note that pursuant to Virginia Code § 58-441.15(b), ********** will become subject to the use tax on any item of tangible personal property so purchased for use in performing construction services for ************. The same would be true for property purchased directly by ******** and provided to ***** for use in performing construction services. The applicable statute reads as follows:
Any person who contracts to perform services in this State and is furnished tangible personal property for use under the contract by the person, or his agent or representative, for whom the contract is performed, and a sales or use tax has not been paid to this State by the person supplying the tangible personal property, shall be deemed to be the consumer of the tangible personal property so tangible personal property so used, irrespective of whether or not any right, title or interest in the tangible personal property becomes vested in the contractor; provided, however, that this paragraph shall not apply to the industrial materials exclusion or the other industrial exclusions set out in § 58-441.6, including those set out in subparagraphs (h), (i) and (j) thereof, or the governmental exclusions set out in subparagraph (p) thereof, or the agricultural exclusions set forth in subparagraph (c) thereof.
While Virginia Code § 58-441.15(b) above is in essence a taxing statute, it contains several exemptions which are to be interpreted strictly against the ones claiming exemption based upon several opinions of the Virginia Supreme Court, including Commonwealth v. Community Motor Bus Company, 214 Va. 155, 198 S.E. 2d 619 (197-3). In adherence to this rule of strict construction, ***** must be deemed liable for tax on items provided it by ***** inasmuch as there is no specific exemption in the statute or elsewhere for tangible personal property provided to a person by a home for adults for use in the performance of services.
Absent the above rule, a strict interpretation of the statute remains in order, based upon the 19// General Assembly amendment to Virginia Code § 58-441.15. Specifically, the statute was amended to permit an exemption from the use tax for contractors who were provided certain tangible personal property by institutions of learning. Had contractors engaged by institutions of learning not needed such an exemption to overcome the contractor's use tax provisions of the statute, it is unlikely that the 1977 amendments would have been enacted.
I must disagree with the assertion that because of the control exercised by ******** over ******** the contractor in essence becomes the employee of and that the provisions of Virginia Code § 58-441.15(b) thus become inapplicable. While the relationship of ***** to ***** may possibly resemble that of master to servant rather than that of principal to independent contractor, such relationship does not overcome the provisions of the law. Virginia Code § 58-441.15(b) is addressed to "any person who contracts to perform services"; it is obvious that********* is such a person within the contemplation of the General Assembly in enacting the statute.
The factual situation under which a federal contractor could make tax exempt purchases and uses of tangible personal property, set forth in United States v. Forst, 442 F. Supp. 920 (W.D.Va.1977), aff'd, 569 F.2d 811 (4th Cir. 1978), is readily distinguishable from the facts here in that a contractor provided tangible personal property by the federal government is specifically immunized from the provisions of Virginia Code § 58-441.15(b). A person engaged to perform services by a home for adults is obviously not so immunized.
Therefore, in summary, ***** may purchase tangible personal property exclusive of the sales and use tax for the present; however, if any such property is provided to ***** or any other contractor, such person(s) will become subject to the use tax on the value of items so provided.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner