Tax Type
Retail Sales and Use Tax
Description
Custom awning fabricator
Topic
Taxability of Persons and Transactions
Date Issued
10-14-1988
October 14, 1988
Re: Va. Code §58.1 - 1821 Application/Retail Sales and Use Tax
Dear****************
This will reply to your letter of July 20, 1988, seeking the correction of an assessment issued in the above referenced case for the periods March 1985, through December 1986, and January 1987, through February 1988.
FACTS
************* ("The Taxpayer") is a fabricator, seller and installer of custom awnings. This appeal stems from an assessment where the auditor held the Taxpayer liable for not properly collecting the tax on sales.
DETERMINATION
§58.1-610(A) of the Code of Virginia provides that "[a]ny person who contracts...to...perform installation...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 installation work does not collect the sales tax from his customer but instead pays the tax on his purchases of materials used in the installation work. However, Virginia Code §58.1-610(D) sets forth an exception to this general rule.
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- Any person selling awnings...or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items.
- Any person selling awnings...or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items.
The Taxpayer was audited and held liable for failure to collect and remit the tax from his customers on his sales of awnings. The Taxpayer submitted a copy of a letter dated January 20, 1981, to the Department stating that the Taxpayer was changing methods of handling the tax; he was going to treat himself as a contractor (pay the tax on purchases), instead of a retailer.
The Taxpayer contends that he is not liable for assessment because of this notice to the Department in 1981. He also contends that he was not aware of the law change in 1985 which mandated contractors who sold awnings and also maintained a place of business and an inventory to be treated as retailers (the Taxpayer questioned whether in fact he was a retailer because he did not maintain an inventory of finished awnings). Furthermore the Taxpayer seeks relief from the assessment on equitable grounds.
The key issue in this case is whether the Taxpayer is a retailer or whether it was proper for the Taxpayer to treat himself as a contractor. According to the regulation section cited above, the requirements of a retailer are that the Taxpayer maintain a place of business, an inventory, and perform installation as part of or incidental to the sale. It is clear from the facts that the Taxpayer maintains a place of business and performs installation, but it is questionable as to whether the Taxpayer maintains an inventory as defined under Regulations §630-10-27(G).
An inventory may consist of finished awnings or component parts used to fabricate the awnings. The test used to determine if their is sufficient component parts to constitute an inventory is whether the Taxpayer maintains most of the parts necessary to fabricate the finished product.
From the Department's findings, the Taxpayer purchased component parts for his inventory in bulk. These parts consisted of hollow tubing, various fittings, and aluminum materials used in the fabrication of the awning. The Taxpayer also kept in inventory leftover component parts from completed jobs. The Taxpayer maintained little or no inventory of aluminum or fabric, the major components of the awnings.
Therefore, the Taxpayer did not maintain most of the parts necessary to fabricate a finished awning. From these component parts the Taxpayer could not complete a contract since he did not maintain in inventory the fabric or aluminum used in customizing the awning. Thus, the Taxpayer does not maintain an inventory for purposes of the regulation section cited above, is not a retailer. and should be classified as contractor.
The audit will be adjusted accordingly and the Department will issue a revised Notice of Assessment. The Taxpayer should follow the general rule of Va. Code §58.1-610(A) and pay the tax on all purchases of tangible personal property used in connection with real estate construction contracts. If you have any further questions, please contact us.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner