Tax Type
Retail Sales and Use Tax
Description
Government contractors
Topic
Taxability of Persons and Transactions
Date Issued
03-21-1986
March 21, 1986
Re: Ruling Request / Governmental Exemption
Sales and Use Tax
Dear ************************
This is in response to your letter of December 17, 1985 in which you request a ruling regarding the application of the Virginia Retail Sales and Use Tax to purchase and rental transactions by contractors pursuant to a contract with a governmental entity. You attached a copy of the department's response to the same inquiry dated November 2, 1977 and ask if there have been any changes in departmental policy that would invalidate that response. Specifically you ask if an exemption from the tax is allowed in the following instances:
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- 1. A contractor rents equipment to be used in the performance of a government contract. or
2. A contractor buys equipment, but title vests immediately with a governmental entity.
- 1. A contractor rents equipment to be used in the performance of a government contract. or
RULING
The position taken by the department in it's 1977 letter that you cite is still applicable. However, September ?1, 1984, the department adopted new Virginia Retail Sales and Use Tax Regulations that set forth the answer to your questions. Section 630-10-45 of these Regulations provides:
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- Persons who contract with the federal government, the State or its political subdivisions to perform a service and in conjunction therewith furnish some tangible personal property are deemed to be the consumers of all such property and are not entitled to exemption on the grounds that a governmental entity is a party to the contract. This is true even though title to the property provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government. The same principle applies to persons who enter into contracts with a governmental entity to perform real property construction, or repair.
- Persons who contract with the federal government, the State or its political subdivisions to perform a service and in conjunction therewith furnish some tangible personal property are deemed to be the consumers of all such property and are not entitled to exemption on the grounds that a governmental entity is a party to the contract. This is true even though title to the property provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government. The same principle applies to persons who enter into contracts with a governmental entity to perform real property construction, or repair.
This is not to say that the governmental exemption is the only type of exemption that may be applicable to these transactions. Currently there are 56 statutory exemptions from the Virginia Retail Sales and Use Tax that may be applicable to specific transactions. Often this type of equipment may be used in research and development which, if that is its exclusive use, may subject the transaction to an exemption.
I hope that this will provide you with the information that you need. If you have any more questions, please do no hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner