Tax Type
Retail Sales and Use Tax
Description
Insulation and fireproofing contractor; Asbestos removal
Topic
Taxability of Persons and Transactions
Date Issued
07-06-1988
July 6, 1988
Re: Request for Ruling/Retail Sales and Use Tax - Contractors
Dear***************
This will reply to your letter of February 24, 1988, in which you requested a ruling on the application of retail sales and use tax to contractors. Generally, the facts set forth in your letter are accurate.
FACTS
The Taxpayer operates a contracting business which consists of insulation, re-insulation, fireproofing and re-fireproofing of real estate and industrial and utility equipment; asbestos removal from both real and personal property; fabrication and installation of insulated walls for cold storage facilities; fabrication without installation of insulated walls for cold storage facilities; and insulation and fireproofing of large marine vessels, including re-insulation and re-fireproofing of the same.
RULING
In general, §58.1-610(A) of the Code of Virginia provides that "any person who contracts...to...perform construction, reconstruction, installation, repair, or any other service with respect to real estate" is deemed to be the taxable user or consumer of any property furnished in connection with the work. As such, the contractor or subcontractor performing the work does not collect the sales tax from his customer but instead pays the tax when purchasing the tangible personal property.
Under this subsection "any sale, distribution...lease to or storage [for such contractor or subcontractor]...shall be deemed a sale" and subject to the tax. Therefore, contractors are almost exclusively deemed to be the taxable users or consumers of' all items purchased/leased/stored in connection with a real estate construction contract and must pay the tax to the supplier of such items.
In accord with Subsection B of §58.1-610 of the Code of Virginia, §58.1-604 of the Code imposes a complementary use tax "upon the use or consumption of tangible personal property in this Commonwealth" when the sales tax is not paid at the time the property is purchased. "If 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." §630-10-27(A) of the Virginia Retail Sales and Use Tax Regulations The term "use" is defined as "the exercise of any right or power over tangible personal property incident to the ownership thereof...." Va. Code §58.1-602(20). Therefore, the contractor or subcontractor "must remit the use tax on any tangible personal property purchased" outside the Commonwealth but consumed within the Commonwealth. Regulation §630-10-27(A).
When the Taxpayer contracts to insulate, re-insulate, fireproof, and re-fireproof with respect to real estate, the tax must be paid by the Taxpayer on such purchases of materials used in the construction contract. The Taxpayer in this case is treated as the ultimate user and consumer. When the Taxpayer contracts to perform the above activities with respect to tangible personal property (e.g. utility equipment), the transaction is considered a sale of tangible personal property and the Taxpayer must collect the tax from the purchaser and remit the tax to the Commonwealth.
When the Taxpayer contracts to remove asbestos from both real and personal property, this transaction is deemed to be a nontaxable service.
When the Taxpayer contracts to fabricate and install insulated walls for cold storage facilities (real property), the Taxpayer is deemed to be the ultimate consumer and "must pay the tax on the cost of the raw materials which make up such fabricated property. The tax must be paid at the time of purchase to all suppliers who are authorized to collect the tax. In instances where the supplier is not authorized to collect the tax or fails to collect the tax, the tax must be remitted to the Department of Taxation on Form ST-7, Consumer Use Tax Return." Virginia Sales and Use Tax Regulations §630-10-27(D).
When the Taxpayer contracts to fabricate cold storage walls without installation, he is deemed to be a retailer. "A person who fabricates tangible personal property and sells it to customers, including contractors, for use or consumption by them, must add the sales tax to the sales price and collect it from the customer for payment to the state. Raw materials, component parts, and other tangible personal property to be fabricated for sale may be purchased under a resale certificate of exemption." Virginia Retail Sales and Use Tax Regulations §630-10-27(D).
When the Taxpayer contracts to install insulation and fireproof materials to tangible personal property (e.g. marine vessels), the Taxpayer is deemed a retailer of such goods and is required to collect the sales tax unless a properly executed exemption certificate is presented at the time of sale by the purchaser. For example, the tax will not apply to ships or vessels used exclusively in interstate or foreign commerce. Virginia Retail Sales and Use Tax Regulations §630-10-98.
In reviewing your draft response, please note that Virginia Retail Sales and Use Tax Regulations §630-10-107 provides that "[t]he tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to the tax." There is no distinction made in the regulations between F. O. B. origin and F. O. B. destination. However, "transportation in" charges incurred in acquiring property for sale are taxable as a part of the sales price of property regardless of whether they are separately stated on the invoice to the purchaser. In summary, separately stated charges for delivery/transportation from the seller to the purchaser are nontaxable.
I hope this answers all your questions and if you have any further questions, please contact the Department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner