Tax Type
Retail Sales and Use Tax
Description
General contractor's tax liability
Topic
Persons Subject to Tax
Taxability of Persons and Transactions
Date Issued
04-04-1988
April 4, 1988
Re: Virginia Code §58.1-1821 Application
Retail Sales and Use Tax
Dear*****************
This is in reply to your letter of June 4, 1987 in which you make application for correction of the recent Retail Sales and Use Tax assessment issued to your client, ************* (Taxpayer).
FACTS
Taxpayer, a Maryland Corporation, was a registered general contractor operating in Virginia during the audit period. The contested assessment relates to sales and/or use taxes due on materials provided by subcontractors. In each case, the "subcontractor" was in fact a retailer selling and/or installing tangible personal property, which did not become affixed to real estate. Furthermore, a written contract between Taxpayer and the subcontractor existed which required the subcontractor to pay all applicable state and local taxes arising from work performed for Taxpayer.
Absent specific invoices from the Taxpayer's subcontractors which separately state the amount the sales tax paid by the Taxpayer, the department assessed the tax to the Taxpayer. You contest this action by the department contending that the language contained in the contracts between Taxpayer and its subcontractors is sufficient to demonstrate that the tax was paid.
DETERMINATION
Even though the taxpayer's subcontractors were contractually obligated to pay all applicable state and local taxes arising from the work performed for Taxpayer, the sales and use tax is imposed upon the ultimate user or consumer of tangible personal property, Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E. 2d 413 (1980). Based upon the requirements under Virginia Code §58.1-610 and Virginia Regulation 630-10-27, Taxpayer, as a contractor respecting real estate, is deemed to be the ultimate user or consumer of the tangible personal property furnished by him in connection with real property construction, reconstruction, installation, repair and similar contracts. Consequently, the tax on the transactions is the legal obligation of your client notwithstanding its contractual arrangements with others.
During the course of the audit, the department requested documentation from your client that would verify that Taxpayer's subcontractors had indeed fulfilled their contractual obligation to pay all applicable state and local taxes arising from work performed for Taxpayer. To date this information has not been provided to the department.
Accordingly, unless your client can provide the department with the requested information, there can be no adjustment to the amount of the assessment. The taxpayer's assessment will be held in abeyance for 30 days so that the requested information can be submitted to the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner