Tax Type
Retail Sales and Use Tax
Description
Fire alarm system installation not separately charged
Topic
Taxability of Persons and Transactions
Date Issued
10-02-1987
October 2, 1987
Re: §58.1-1821 Application/ Sales and Use Tax
Dear *****************
This will reply to your letter of February 18, 1987 on behalf of ********** (taxpayer), seeking correction of an assessment in the above referenced case for the period November, 1982 through June, 1986.
FACTS
In connection with its business as an electrical contractor, the taxpayer was audited and held liable for the use tax on its untaxed purchases of certain fire alarm system components for use in electrical contracts with certain nonprofit institutions. The taxpayer contends that it should not have been held liable for the tax on these items since its supplier was a qualified subcontractor, and therefore liable for the tax on the items. In addition, the taxpayer contends that the audit is overstated since it includes invoice amounts which were also reflected in bid prices quoted by its supplier for the provision of the fire alarm system components.
Lastly, the taxpayer contends that more than half of the amounts held taxable in the audit represented charges by its supplier for manufacturer's warranty required final connection services, and testing of the alarm systems at various intervals after installation. Therefore, according to the taxpayer, these charges should be removed from the audit assessment as nontaxable charges for installation labor.
DETERMINATION
§58.1-610 (A) of the Virginia Code provides that "[a]ny person who contracts orally, in writing, or by purchase order, 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 the dealer making the sale...to ... such person shall be obligated to collect the tax to the extent required by this chapter."
In addition, §630-10-27(A) of the Virginia Retail Sales and Use Tax Regulations provides that, "[i]f a supplier of a contractor doing work in Virginia does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier." (Copy enclosed)
The invoices submitted by the taxpayer do not support its contention that its supplier should have been held taxable as the using and consuming contractor of the fire alarm system components in this case. Rather, the invoices demonstrate that the fire alarm system components were purchased by the taxpayer in its capacity as a using and consuming contractor. This conclusion is supported by the taxpayer's August 8, 1986 letter to the department which stated that the taxpayer, and not its supplier, was responsible for installation of the fire alarm system components. In addition, while the fire alarm system supplier may have been a qualified subcontractor at the time of making its sales to the taxpayer, it was not-acting in this capacity with respect to the construction projects in which the taxpayer was the contractor.
The auditor has informed me that one invoice in the amount ********* of was also erroneously included in one of the bid amounts held taxable in the audit. Therefore, this amount will be removed from the assessment. However, the remaining invoices submitted do not support the taxpayer's contention that there has been any other duplication of the tax. Rather, the invoices submitted refer to additional items to be installed which were either not included in the supplier's initial bid amounts or which were to be installed in locations different from those mentioned in the bid letters. In addition, it is my understanding that the supplier's bid amounts were included in the audit only in those instances where the taxpayer was unable to provide actual purchase invoices from its suppliers.
Furthermore, the fact that the total amounts charged to the taxpayer by its fire alarm system supplier may have included amounts for services performed by the supplier in connection with the installation of such systems, does not necessarily render any portion of such charges nontaxable. Section 58.1-602(17) of the Virginia Code excludes from the definition of the term "sales price", (ii) an amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing properly sold." (Emphasis added) In addition, §630-10-97.1(A). a copy of which is enclosed, provides that the tax applies to "(1) any services included in or in connection with the sale of tangible personal property." Since the invoices to the taxpayer did not include any separately stated charges for installation labor, I find no basis at this time for any correction of the assessment on this issue.
Based on all of the foregoing, except for the *********** invoice mentioned above, I find no basis for any further correction of the assessment at this time. However, if the taxpayer can provide the department with any other invoices which clearly show that any of the bid amounts held taxable in the audit quoted prices greater than it actually paid to its suppliers, I will consider adjustment of the audit on this issue. In addition, if the taxpayer can provide the department with a breakdown of the service charges made by its fire alarm system supplier, separating any charges for follow up testing from charges for installation labor, I will consider the removal of such installation labor charges from the audit. Such information should be sent to the department's Technical Services Section, office Services Division, P.O. Box 6-L, Richmond, Virginia 23282 r within thirty days of the date of this letter.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner