Tax Type
Retail Sales and Use Tax
Description
Transitional provisions; Construction contracts
Topic
Payment and Refund
Rate of Tax
Date Issued
02-27-1987
February 27, 1987
Re: Request for Ruling/Sales and Use Tax
Dear********************
This will reply to your letter of January 5, 1987, in which you request a ruling on several questions relating to the transitional provisions of the recently enacted Virginia sales and use tax rate increase. Your questions relate to the purchase of materials for use in bona fide real estate construction contracts, including leases of equipment for use in such projects.
First, you wish to learn what items used in a bona fide real estate construction contract will be subject to the transitional provisions set forth in §58.1-639 of the Code of Virginia and Emergency Virginia Regulation 630-10-106. In answering this question, it must be remembered that the transitional provisions contained in §58.1-639 of the Code of Virginia were intended to approximate the transitional provisions contained in the original Virginia Retail Sales and Use Tax Act for contracts entered into before the enactment of the tax in 1966. Therefore, I feel it is helpful to analyze the 1966 statutory exemption language that was found at §58-441.6 (b) of the Code of Virginia:
Tangible personal property delivered pursuant to bona fide written contracts entered into before the date of the enactment of this chapter, provided delivery is made within ninety days after June twenty-seven, nineteen hundred sixty-six; and building supplies, fixtures or equipment that enter into or become a part of a building or other kind of structure in this State, where plans, specifications, and the construction contract for a specific project has been entered into prior to the date of the enactment of this chapter, provided delivery is made within the time specified in such contract for the completion of such specific project. Emphasis added
Based on the 1966 statute and the intent of the 1986 rate increase legislation, I must conclude that the transitional provisions applicable to bona fide real estate construction contracts will be applicable only to the additional 1/2 % tax paid on (1) materials permanently incorporated into real estate, and (2) construction supplies, fixtures, and equipment that enter into the construction of or become a part of a structure, highway, etc. Items included in the second category would include concrete form materials, custom-made concrete forms, welding rods and gases, fuel for construction equipment, and other nonreusable items that enter into construction. The transitional provisions will not apply to office supplies and other materials that do not enter into the actual construction of a structure, highway, etc.
In addition, you wish to determine the application of the transitional provisions to leases of construction equipment when the lease is for an indefinite term on a month-to-month basis. Emergency Virginia Regulation 630-10-106, §4, provides that refunds of the additional 1/2 % tax paid on a lease on and after January 1, 1987 will not be available if the otherwise qualifying lease is renegotiated or renewed. Thus, if the lease in question is automatically renewed each month, refunds will not be available. However, if the lease is longterm in nature, but may be cancelled at any time, refunds may be available provided that the other criteria set forth in §58.1-639 of the Code of Virginia and Emergency VR 630-10-106 are met.
As to the proper procedure for filing use tax returns, I must conclude that the law will require contractors and others to remit the full 4 1/2 % state and local tax even though the property subject to the tax may also be subject to the transitional provisions. Thus, persons who remit the use tax on items subject to the transitional provisions will be required to pay the full amount of tax imposed, then seek a refund of the additional 1/2 % tax.
Lastly, the department has not prescribed a specific form to be used when submitting refund requests. Instead, such requests may be requested by letter. Refund requests may be submitted periodically throughout the term of a contract or at the end of the contract, however, any refund request must be filed within three years from the date the tax became due. This point is noted in §5.C of Emergency Virginia Regulation 630-10-106.
I trust that this will answer your questions; however, please do not hesitate to contact the department if any further questions arise
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner