88-204 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Installer of cabinets and countertops

Topic

Taxability of Persons and Transactions

Date Issued

07-14-1988

July 14, 1988

Re: Request For Ruling/Retail Sales and Use Tax - Contractors

Dear*****************

This will reply to your letter of May 20, 1988, in which you requested a ruling on the application of sales and use tax to your client.

FACTS

The Taxpayer is a seller and installer of cabinets and countertops. At present, the Taxpayer sells and installs the above items of tangible personal property but maintains no showroom or inventory. The Taxpayer anticipates establishing a showroom and selling to the general public as a retailer. This ruling will address both types of transactions.

RULING

§58.1-610(D) of the Code of Virginia states that a person who sells and installs cabinets and kitchen equipment which become incorporated into real property shall not be treated as a using and consuming contractor if the requirements of a retailer are met. Interpreting §58.1-610(D), §630-10-27(G) of the Virginia Retail Sales and Use Tax Regulations provides:

- A person selling and installing tangible personal property that becomes real property after installation is generally considered a contractor, except that a retailer selling and installing...cabinets, kitchen equipment [etc.]...or other like or comparable items is not classified as a using or consuming contractor with respect to them.

For purposes of Va. Code §58.1-610(D), a retailer includes "any person who maintains a retail or wholesale place of business, an inventory of the aforementioned items...and who performs installation as part of or incidental to the sale of the aforementioned items." Virginia Retail Sales and Use Tax Regulation §630-10-27(G). To be deemed a retailer, the Taxpayer must meet the three elements set forth above. Thus, the Taxpayer at the present time is to be treated as a contractor (because he maintains no inventory) under code and regulations sections cited above and must pay the tax on all supplies purchased in connection with such contracts.

If in the future the Taxpayer sells and installs any of the above mentioned items and also meets the requirements of a retailer, then the Taxpayer must register with the Department for collection of the sales tax; can purchase the items of tangible personal property under a purchase for resale exemption certificate; and charge the sales tax to customers based on the sales price. These sales tax registration and collection requirements would also apply should you decide to open a showroom for purposes of selling cabinets to the general public, including the installation of such cabinets.

As a contractor, the Taxpayer must follow the general rule of Virginia Code §58.1-610(A), which 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 Taxpayer 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]...shall be deemed a sale" and subject to the tax. Therefore, the Taxpayer is almost exclusively deemed to be the taxable user or consumer 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.

Va. Code §58.1-604, 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 Taxpayer must remit the use tax on any tangible personal property purchased outside the Commonwealth but consumed within the Commonwealth.

If you have any further questions, please contact the Department.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner