87-20 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Kitchen and food equipment sales and installation

Topic

Taxability of Persons and Transactions

Date Issued

02-09-1987

February 9, 1987

Re: § 58.1-1821 Application/Sales and Use Tax

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

This will reply to your letter of February 24, 1986, in which you submit an application for correction of sales and use tax assessed to ************** as the result of a recent audit.

FACTS

**********************(Taxpayer) is engaged in furnishing and installing commercial food and commercial kitchen equipment for customers. A recent audit of the taxpayer produced an assessment for its failure to collect the sales tax on the sale of equipment. The taxpayer contests such assessment, claiming it is engaged as a contractor with respect to real estate and is therefore not required to collect the tax from customers.

DETERMINATION

Section 58.1-610.D of the Code of Virginia provides that "[t]angible personal property incorporated into real property construction which loses its identity as tangible personal property shall be deemed to be tangible personal property used or consumed within the meaning of this section."

As such, the above statute generally provides that any person who furnishes and installs tangible personal property that becomes a part of real estate is to treat himself as a contractor and remit the sales and use tax on all materials furnished by him as part of contracts. However, the statute goes on further:

- a person selling...kitchen equipment...shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items.

The above provision as it relates to persons furnishing and installing kitchen equipment was added to the statute in 1980. Consistent with the law change, the department published Sales and Use Tax Policy Statement 80-4 (copy enclosed), which stated that persons engaged in furnishing and installing kitchen equipment were retailers (rather than contractors respecting real estate) and should collect the tax from their customers. From the date of its issuance, this policy statement reflected the official policy of the department until the publication of Section 630-10-27 of the Virginia Retail Sales and Use Tax Regulations on January 1, 1985. Therefore, the assessment of tax to the taxpayer in this case is proper under Policy Statement 80-4 prior to January 1, 1985. However, the department will allow the taxpayer to credit against the assessed tax any tax it paid to suppliers on the property to which the sales tax assessment relates.

After January 1, 1985, the taxpayer's activities are governed by Regulation Section 630-10-27. Under subsection G of the regulation, a person who sells and installs kitchen equipment is deemed to be a retailer if he maintains a retail or wholesale place of business from which sales are made, an inventory of, kitchen equipment, and provides installation as part of the sale of kitchen equipment. Based upon the information before me, I am unable to conclude whether the taxpayer would be deemed a retailer or a contractor under this policy. Therefore, it will be necessary for the department's Technical Services Section, in consultation with the department's audit staff, to review the taxpayer's operations and make a determination. In the event that the taxpayer is found to be a contractor under Regulation Section 630-10-27, those transactions on or after January 1, 1985 involving the affixation of food and kitchen equipment to realty will be removed from the department's audit. In the event that the taxpayer disagrees with the determination reached by the Technical Services Section, I will be happy to again review this matter.

Sincerely,

W.H. Forst
Tax Commissioner

Rulings of the Tax Commissioner