Tax Type
Retail Sales and Use Tax
Description
Temporary storage in Virginia; Exempt construction jobs outside of Virginia
Topic
Taxability of Persons and Transactions
Date Issued
03-27-1987
March 27. 1987
Re: §58.1-1821 Application/ Sales and Use Tax
Dear **********************
This will reply to your letter of December 19, 1986 seeking correction of an assessment in the above referenced case for the period May, 1983 through April, 1986.
FACTS
In connection with its business as an elevator installation contractor ********* (taxpayer) was held liable for the sales and use tax on its untaxed Purchases of equipment and supplies purchased from out-of-state suppliers for temporary storage in Virginia and eventual use or consumption by the taxpayer in real property construction in Virginia, Maryland and the District of Columbia. The taxpayer contests the assessment on the grounds that the sample of invoices used by the department's auditor to develop an error factor to be applied over the entire audit period was significantly overstated.
According to the taxpayer, in deriving the error factor the department's auditor failed to consider its voucher system of accounting in which items received for payment in one month may not actually be authorized for payment until a second or subsequent month. In addition, the taxpayer contests the inclusion in the sample period of several other invoices representing items which were purchased for use in exempt construction projects outside Virginia.
It is the department's understanding however that at the time of the audit the taxpayer made no objection to the sample period selected and presented no documentation to indicate that any of the invoices included in the sample should not have been so included.
DETERMINATION
Based on the information presented I find no basis for concluding that the invoice in the amount of remitted as "schedule # 4" in the taxpayer's December 19 letter should not have been included by the auditor in the sample period. Nor do I find basis at this time for concluding that any or all of the remaining invoices remitted represent purchases which should not have been included in the sample period.
630-10-109(A) of the Virginia Retail Sales and Use Tax Regulations provides that "the use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." This regulation illustrates that the use tax is a moment of transaction tax, i.e., tax liability is incurred at the moment of first use in Virginia, regardless of any subsequent use or consumption outside this state.
However, §630-10-27(I) of the regulations provides that, "[c]onstruction contractors may purchase exempt from tax construction materials for temporary storage in Virginia to be used in exempt construction projects in other states or foreign countries...This exemption is restricted to construction materials incorporated into exempt real property construction. The tax applies to equipment. tools, supplies, etc.. used in performance of the construction contract. The tax applies to all other construction materials, temporarily stored in Virginia, that will be incorporated into real estate construction projects outside Virginia."
Notwithstanding all of the foregoing the audit in this case is being returned to the district office for revisions. The auditor will be in contact with the taxpayer to arrange a meeting, within 60 days of the date of this letter. to select an additional month in which to sample the taxpayer's untaxed purchases. This additional month of purchases will be combined with the original month selected in deriving a more representative sample of untaxed purchases to be applied over the entire audit. In addition, the auditor will remove from the original audit sample and exclude from the additional month sampled any purchases for which the taxpayer is able to produce documentation showing that the invoices represented purchases of items for temporary storage in Virginia and subsequent use in exempt construction contracts outside of Virginia.
If the taxpayer fails to respond to the auditor within the time period stated above or otherwise fails to cooperate with the department in making the revisions which are authorized herein. the original assessment will be deemed valid and collection action will be taken to enforce payment.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner