87-82 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Architectural design firm; Renderings; Wall coverings

Topic

Taxability of Persons and Transactions

Date Issued

02-27-1987

February 27, 1987

Re: Virginia Code §58.1-1821 Application
Retail Sales and Use Tax

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

This is in reply to your letter of July 14, 1986 in which you make application for correction of the Retail Sales and Use Tax assessment that resulted from the department's most recent audit of ************* (Taxpayer) and the letter from your firm's attorney dated July 10, 1986.

FACTS

Taxpayer is an architectural design firm which also provides interior design consulting services to its clients. You contest two areas of the department's recent audit: (1) tax assessed on the charge for the production of renderings and (2) tax assessed on the sale of tangible personal property to the Taxpayer's clients. Since these are two separate and independent issues, I will address each separately.

DETERMINATION

Renderings

The Taxpayer contracts with an out of state art company for renderings to be used to visually depict how a project will appear when completed. These renderings are used when the Taxpayer's clients are unable to visualize what they are purchasing from blueprints and design sketches.

Virginia Code §58.1-602.16, in part, defines "sale" as:

- any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration, and includes the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication, and the furnishing, preparing, or serving for a consideration of any tangible personal property consumed on the premises of the person furnishing, preparing, or serving such tangible personal property.

The furnishing of a rendering constitutes the transfer of tangible personal property. Therefore, absent any other statutory exemption, the charge made by the art company for such renderings constitutes a sale of tangible personal property. In that the purchase of these renderings were purchases of tangible personal property, made by the Taxpayer exclusive of the tax, for use or consumption within this state, the Taxpayer is subject to the use tax on the entire amount paid to the art company for such renderings. This is consistent with the department's regulations and its long-standing position, as evidenced by the copy of the attached determination dated May 21, 1982.

Sales of wall coverings

As part of the Taxpayer's interior design consulting services, they collect down payments from their clients and order items such as furniture and wall coverings from manufacturers and vendors. on the contested transactions, the Taxpayer was the invoiced purchaser of the items, while directing that the merchandise be shipped directly to their client. In each of the transactions assessed, no tax appears to have been paid.

Section 630-10-50 of the Virginia Retail Sales and Use Tax Regulations states:

- When a decorator goes beyond the rendition of services and sells tangible personal property, the decorator must register as a dealer and collect and pay tax on retail sales.

Your attorney cites a February 14, 1983 ruling from the department in support of your assertion that the Taxpayer is not responsible for paying sales tax on the wall coverings. While there are similarities in both cases, they can be distinguished by whose credit is bound in the transaction. The determination in the February 14, 1983 ruling was based upon the fact that the appellant's credit was never bound in the purchase transaction. Based upon the information available to the department's auditor, the Taxpayer's credit appears to have been bound by the transaction, rather than the credit of the client, as indicated in the ruling dated February 14, 1983. Accordingly, the Taxpayer went beyond the rendition of services and purchased tangible personal property which was then resold to the clients.

Based upon the foregoing, I find no basis for relief of the audit assessment at this time. However, to the extent that the Taxpayer can demonstrate that the credit of its customers was indeed bound in the contested transactions involving the sales of wall coverings, the department will adjust the audit assessment to remove any such transactions from the audit. Please contact the department's Technical Services Section at this address if any such transactions are identified.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner