Tax Type
Retail Sales and Use Tax
Description
Construction materials stored in Virginia; Use tax
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
06-23-1988
June 23, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear****************
This will refer to your letter of February 26, 1988, in which you submit an application for correction of sales and use tax assessed to*********** and to your meeting of June 7, 1988 with representatives of the department's Tax Policy Division.
FACTS
************* (Taxpayer) is engaged in the construction and sale of homes. The taxpayer operates a Virginia production and warehouse facility, which provides construction materials to its construction divisions located both within and without Virginia. In addition, some of the materials produced or stored at the Virginia facility will be sold at retail to customers both within and without the state.A recent audit of the taxpayer produced an assessment for materials used by the taxpayer at its Virginia facility. The taxpayer contests this assessment on the basis that materials that ultimately will be used in construction projects outside of Virginia are not subject to the tax.
DETERMINATION
The tangible personal property in question was purchased by the taxpayer primarily for use in its own construction operations and was stored in Virginia prior to its shipment to construction sites in Virginia and other states. §58.1-604 or the Code of Virginia imposes the use tax "upon the use or consumption of tangible personal property in this State." "Use" is in turn defined in §58.1-602 of the Code of Virginia as "the exercise of any right or power over tangible personal property incident to the ownership thereof." As such, the production for its own use and/or storage of construction materials by the taxpayer within Virginia clearly constitutes a taxable use of tangible personal property within the state.
The department's assessment is directly supported by' the opinion of the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980), which held taxable the storage of tangible personal property in Virginia, even though the property would ultimately be shipped outside of the state.
I also find that the use tax was properly computed on the full cost price of the materials stored in Virginia. §58.1-604 of the Code of Virginia (also see Virginia Regulation 630-10-109.D) provides for proration of the use tax based on actual usage in Virginia under extremely limited circumstances, i.e., when "tangible personal property...has been acquired for use outside this State and subsequently becomes subject to the (Virginia) tax." (Emphasis added) In this instance, the property was not acquired for use outside the state as the taxpayer exercised first use of the property within Virginia.
Lastly, I do not find basis for crediting use tax paid to other states against the taxpayer's liability. §58.1-611 of the Code of Virginia provides for a credit only with respect to "a person's use in this State of tangible personal property purchased by him in another state." The statute limits the credit "to the tax paid by him to another state...by reason of the imposition of a similar tax on his purchase or use of the property." As such, it is clear that the credit is intended to apply when a person purchases property in another state and pays the sales or use tax to that state. A credit is not provided, however, when a consumer exercises first use of property in Virginia and subsequently incurs a use tax liability elsewhere.
Based upon the foregoing, the tax was properly applied to materials for use in the taxpayer's construction operations. The department will review its audit, however, to insure that the use tax was not assessed on materials that were resold to other consumers (sales on which Virginia tax was collected or exempt sales in interstate commerce to out-of-state consumers) or which were transferred to an out-of-state resale inventory. The department's auditors will contact the taxpayer to obtain any necessary information in this regard.
For your information, I have enclosed copies of documents relating to the department's previous audit. These documents indicate that the taxpayer paid Virginia sales or use tax on all materials purchased by its Virginia facility. The agreement resolving the previous audit and the subsequent issuance of a direct payment permit did not in any way change the taxpayer's responsibility to pay Virginia tax when it exercises first use within the state.
Please contact us if you have any questions or if we can be of any assistance to the taxpayer in seeking refunds of use tax erroneously paid to other states.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner