Tax Type
Retail Sales and Use Tax
Description
Enterprise Zone; Purchases by contractors
Topic
Returns/Payments/Records
Date Issued
07-06-1988
July 6, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear******************
This will reply to your letter of March 30, 1988 in which you seek a correction of Enterprize Zone tax incentives denied your client, ********** as the result of an audit for tax years 1985 and 1986.
FACTS
through its wholly owned subsidiary************* (Taxpayer) has operated a soft drink bottling company within an Enterprise Zone in ********** since 1985. The Taxpayer filed the necessary returns in accordance with the Enterprise Zone Act for a refund of sales and use taxes paid. Upon review by the department, a majority of the Taxpayer's claims were denied. The Taxpayer is contesting the denial of sales tax paid upon materials used in the construction of the bottling facility within the Enterprise Zone and taxes paid upon the purchase of vehicles used in the operation of the Roanoke plant.
The Taxpayer contends that during the years 1985, 1986 and 1987 it was assured by the Program Manager for the Department of Housing and Community Development that it would be entitled to certain tax incentives, and in particular that it would be entitled to a refund of the taxes paid upon the purchase of vehicles and the taxes passed through for the construction of the ********** plant. In regards to the sales tax on construction costs, the Taxpayer further contends that while it did not directly pay sales tax for materials purchased for use in the construction of its plant, those costs have been passed through in the overall construction price. With regard to the tax on motor vehicles, it is the Taxpayer's contention that the vehicles were purchased for the conduct of business within the Enterprise Zone, the taxes paid were based upon the sales of the vehicles, and such taxes should be considered sales taxes within the spirit and intent of the Enterprise Zone Act and regulations.
First, the Taxpayer seeks a refund of taxes paid by its contractors on the construction of the It has been the policy of the Department of Housing and Community Development and this department since the inception of the Enterprise Zone program that a qualified business firm will not receive sales tax credits on building materials used in construction within an Enterprise Zone unless the firm purchases the building materials and performs the construction work itself. This policy was set forth in an April 1984 Enterprise Zone Information Bulletin which the Department of Housing and Community Development disseminated to each Enterprise Zone Administrator (see enclosed copy).
The Enterprise Zone Program Regulations, first issued in July 1983, specifically state that the sales and use tax exemption is only available for tax "actually paid during the year for which the exemption is claimed." As provided in Virginia Retail Sales and Use Tax Regulation 630-10-27, "[a] contractor...does not pass the sales and use tax on to anyone else as a tax." The regulation further states "the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction." Therefore, I must conclude that the Taxpayer is not eligible for a refund of taxes paid by contractors in the construction of the plant.
Second, the Taxpayer seeks a refund of the motor vehicle sales and use tax paid on the purchase of motor vehicles. §59.1-282 of the Enterprise Zone Act specifically limits the sales and use tax exemption to the payment of taxes under Chapter 6 (Retail Sales and Use Tax, §58.1-600 et seq.) of Title 58.1 of the Code of Virginia. §58.1-608(7) of the Code of Virginia exempts motor vehicles from the Retail Sales and Use Tax. The Motor Vehicle Sales and Use Tax is promulgated under Chapter 24 (§58.1-2400 et seq.) of Title 58.1 of the Code of Virginia and does not fall within the scope of the Retail Sales and Use Tax. Therefore, the department has no statutory authority under the Enterprise Zone Act to provide a refund of taxes paid on motor vehicles.
Based on the foregoing, the taxpayer's refund requests were properly denied. If you have any further questions about the issues raised in this determination, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner