87-205 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Materials for real property construction; Taxes erroneously paid to another state

Topic

Credits

Taxability of Persons and Transactions

Date Issued

09-11-1987

September 11, 1987

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

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

This will reply to your letter of March 12, 1987, in which you submit an application for correction of sales and use tax assessed to *********** as the result of a recent audit.

FACTS

A recent audit of ********** ("Taxpayer") produced an assessment for various articles of tangible personal property furnished by construction contractors. In addition, credits for sales taxes paid erroneously to other states were disallowed by the department.

The taxpayer contests the assessment, contending that it was not the taxable user or consumer of tangible personal property furnished to it by contractors and that the out-of-state sales taxes in question were properly paid and thus should be credited against the Virginia tax.

DETERMINATION

I will separately address below each of the issues raised in the taxpayer's appeal:

Real Estate Construction Contracts

§58.1-610.A of the Code of Virginia provides:

- 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.

As such, a contractor with respect to real estate is himself subject to the sales and use tax on all purchases made in connection with a real estate construction contract. An exception to this general rule is set forth in §58.1-610.D of the Code of Virginia:

- Any person selling fences, venetian blinds, window shades, awnings, storm windows and doors, floor coverings (as distinguished from the floors themselves), cabinets, kitchen equipment, window air conditioning units or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them.

Similarly, a contractor is not deemed to be the taxable user or consumer when he furnishes and installs tangible personal property that does not become affixed to realty or when he otherwise acts as a retailer of tangible personal property.

The department will revise the instant audit to the extent that the taxpayer can demonstrate that contracts included in the audit represented true contracts with respect to real estate. Further, those contracts which involved the furnishing and installation of service station canopies will be removed from the audit based on an April 21, 1987 departmental ruling, a copy of which is enclosed. However, contracts which involved only the furnishing of tangible personal property and contracts with retailers of the type described in §58.1-610.D of the Code of Virginia and Virginia Regulation 630-10-27.G will remain in the department's audit.

Credit for Sales Taxes Paid to other States

§58.1-611 of the Code of Virginia provides:

- A credit shall be granted against the taxes imposed by this chapter (Virginia Retail Sales and Use Tax Act) with respect to a person's use in this State of tangible personal property purchased by him in another state. The amount of the credit shall be equal to the tax paid by him to another state or political subdivision thereof by reason of the imposition of a similar tax on his purchase or use of the property.

Thus, for the credit to apply, the tax must be paid to the state in which the property was purchased and that state must actually impose a sales tax on the transaction. Interpreting this statute, Virginia Regulation 630-10-29 provides:

- This credit does not apply to tax erroneously charged or incorrectly paid to another state. For example, if a person purchases and takes delivery in Virginia of tangible personal property purchased from an out-of-state dealer who incorrectly charges out-of-state tax, no credit is available. The purchaser must apply to the out-of-state seller for refund.

It is my understanding that the taxes in question were erroneously paid to other states when the first use of the purchased items was actually made in Virginia. If so, the out-of-state tax credit is not applicable in this case. The credits will be allowed, however, to the extent that the taxpayer can demonstrate that it purchased property in another state, properly paid the sales tax to that state, and subsequently imported the property into Virginia for its use.

Please contact us within thirty days if you wish to schedule a conference to discuss this matter or if you wish to submit additional information that will permit the revision of the audit as it pertains to fixed asset contracts and sales taxes paid to other states.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner