86-145 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Contractor; Materials for contract with nonprofit organization

Topic

Property Subject to Tax

Date Issued

07-31-1986

July 31, 1986

Re: Request for Ruling/Sales and Use Tax

Dear ***************

This will reply to your letter of June 18, 1986, in which you request a ruling on the application of the sales and use tax to materials purchased by a contractor in fulfillment of his contract with your organization.

As noted in your letter, your organization generally qualifies for an exemption from the sales and use tax under the provisions of Section 58.1-608.44 of the Code of Virginia. This statute provides that "[t]he tax...shall not apply to...[t]angible personal property for use or consumption by...a nonprofit science-technology museum which receives operating funds from the Commonwealth in an amount which represents at least ten percent of such museum's operating budget." At question here, however, are purchases of tangible personal property by a contractor in fulfillment of a real estate construction contract with your organization. Although your organization may enjoy a sales and use tax exemption on its own purchases, the same does not necessarily apply to purchases by your contractor.

Virginia Code Section 58.1-610.A sets forth the application of the sales and use tax to contractors generally:

- Any person who contracts...to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption. Any sale... to...such person shall be deemed a sale...for the ultimate consumer and not for resale, and the dealer making the sale...shall be obligated to collect the tax...

Therefore, contractors are almost exclusively deemed to be the taxable users or consumers of all items purchased in connection with a real estate construction contract, including contracts with the federal, state, and local governments, political subdivisions, and other organizations that enjoy general exemptions from the sales and use tax. Thus, the construction contractors engaged by your organization are properly being charged the sales tax by their suppliers.

In addition, Virginia Code Section 58.1-610.B does not generally permit a contractor to escape the tax when an exempt organization purchases materials and furnishes them to the contractor:

- Any person who contracts to perform services in this State and is furnished tangible personal property for use under the contract...by the person 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 used, and shall pay a use tax based on the fair market value of the tangible personal property...

Thus, a contractor furnished tangible personal property upon which the tax has not previously been paid will himself become liable for the use tax. The only exceptions to this rule that are set out in the statute are for certain property furnished to contractors by federal, state, or local governments (and political subdivisions thereof), farmers, industrial manufacturers, processors, and miners, public service corporations, ship builders, and broadcasters.

Although I realize that the economic impact of taxing purchases by contractors may ultimately fall on your organization and empathize with your situation accordingly, I do not find basis under the law for granting an exemption to your organization's construction contractors in this case. For your information, I have enclosed a copies of Virginia Code Section 58.1-610 and Section 530-10-27 of the Virginia Retail Sales and Use Tax Regulations, which address the application of the tax to contractors.

Please do not hesitate to contact the department if additional information is desired or further questions or concerns arise.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner