Tax Type
Retail Sales and Use Tax
Description
Government contractor; Sales to government
Topic
Exemptions
Date Issued
09-06-1988
September 6, 1988
Re: §58.1-1821 Application/ Sales and Use Tax
Dear***************
This responds to your letter of March 4, 1988 on behalf of ************* seeking further correction of a sales and use tax assessment recently issued by the department. This also refers to my initial determination in this case dated January 4, 1988, and to a meeting held between representatives of the taxpayer and members of my staff on July 28, 1988.
FACTS
By letter dated January 4, 1988, copy attached, the taxpayer was granted more time to submit information on its untaxed purchases of materials, equipment and supplies to outfit a training facility in connection with its provision of command, control and communication (C-3) systems under a contract with the U.S. government.
The training facility was operated by the taxpayer on its own property located in Northern Virginia, to instruct ********** naval personnel in the proper operation and maintenance of C-3 systems. Through modifications to its initial contract with the government, the training facility became a deliverable item under the contract. The taxpayer operated the training facility in Virginia for approximately three years, at which time it was shipped to ********** for installation there, together with the three C-3 systems which were called for under its initial contract with the government.
The taxpayer contends that its purchases of materials, equipment and supplies to outfit the training facility should not have been held taxable in the audit since title to the items purchased passed immediately to the U.S. government prior to any use of the equipment by the taxpayer.
The taxpayer contends further that even if it made a temporary use of these items prior to actual delivery to the government, such a temporary use does not prevent the application of the resale exemption found in Virginia Code §58.1-602(14) to such purchases, under a recent opinion of the Virginia Attorney General, dated October 30, 1987.
DETERMINATION
Section 58.1-608(18) of the Virginia Code provides an exemption from the sales tax for "[t]angible personal property for use or consumption by ... the United States." However, this exemption does not apply to persons who contract to provide services for the federal government.
Virginia Regulation (VR) 630-10-45(E) provides that:
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- Persons who contract with the federal government, the State or its political subdivisions to perform a service and in conjunction therewith furnish some tangible personal property are deemed to be the consumers of all such property and are not entitled to exemption on the grounds that a governmental entity is a party to the contract. This is true even though title to the property Provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government. (Emphasis added)
- Persons who contract with the federal government, the State or its political subdivisions to perform a service and in conjunction therewith furnish some tangible personal property are deemed to be the consumers of all such property and are not entitled to exemption on the grounds that a governmental entity is a party to the contract. This is true even though title to the property Provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government. (Emphasis added)
My analysis of the training facility portion of the contract in the present case, in particular the documentation provided to my staff in a recent meeting, reveals that it is indeed a contract for the sale of tangible personal property, i.e., a C-3 system training facility. While the taxpayer was obligated under the contract to provide the government with actual instruction of the ********* naval personnel in the operation and maintenance of C-3 system equipment, the goal of this portion of the taxpayer's contract with the government was to provide a fully equipped training facility for shipment to ******** and installation there for on-going use as a training facility.
As such, the materials and equipment purchased by the taxpayer to outfit the training facility which became deliverables under its contract with the government qualified for exemption from the tax since they were for resale to the government. Accordingly, to the extent that such deliverables were included in the department's recent audit, they will be removed from the assessment. However, the taxpayer's purchases of other. materials, equipment and supplies for use in operating the training facility, such as items used and consumed in providing the training, did not become deliverables under its contract with the government and were therefore properly held taxable in the audit.
The assessment will be adjusted in a manner consistent with the foregoing and the enclosed January 4, 1988 determination, and a revised notice of assessment will be issued to the taxpayer under separate cover.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner