Tax Type
Retail Sales and Use Tax
Description
Contractor purchases from out-of-state vendors, delivered to Virginia job site
Topic
Taxability of Persons and Transactions
Date Issued
05-04-1988
May 4, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear *************
This will reply to your letter of January 8, 1988, on behalf of *********** (taxpayer), seeking correction of a sales and use tax assessment for the period February 1981 through December 1986.
FACTS
In connection with work performed on a construction project in Virginia, the taxpayer, a nonresident real estate construction contractor, was assessed sales and use tax on its lease/ purchases of a mobile platform lift and various replacement parts and tools. The taxpayer contests the assessment on these lease/ purchases contending that they were consummated out-of-state with nonresident vendors and therefore, no tax should be due to Virginia.
In support of its position, the taxpayer cites the case of Trotwood Trailers, Inc. v. Evatt, 142 O.S. 197, 51 N.E. 2d 645 (1943), which upheld the application of Ohio's sales tax to sales made by an Ohio vendor pursuant to orders placed by a nonresident purchaser, where the purchaser came into Ohio to accept delivery of the goods purchased.
It is the department's understanding that while the contested items in this case were purchased from nonresident vendors, the taxpayer accepted delivery of the items purchased at its Virginia construction site.
DETERMINATION
Section 58.1-603 of the Virginia Code imposes a sales tax upon the "gross sales Price of each item or article of tangible personal property when sold at retail or distributed in this State...[or on] ... the gross proceeds derived from the lease or rental of tangible personal property ... [in this State]." The term "sale" is then defined in §58.1-602(16) of the Code as "any transfer of title or possession, or both, exchange, barter, lease or rental of tangible personal property...
Section 58.1-604 of the Code imposes a complementary use tax "upon the use or consumption of tangible personal property in this State" when the sales tax is not paid at the time the property is purchased. The term "use" is then defined in Virginia Code §58.1-602(20) as "the exercise of any right or power over tangible personal property incident to the ownership thereof..."
In addition, §58.1-610 of the Virginia Code treats every construction contractor as the taxable user or consumer of all tangible personal property purchased in connection with real property construction, reconstruction, installation, repair and similar contracts in this State.
Consistent with the foregoing, Virginia Retail Sales and Use Tax Regulation (VR) 630-10-27(A), copy enclosed, provides, "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."
Since the taxpayer's vendors failed to charge Virginia sales tax on the items leased or purchased, it was the taxpayer's responsibility to remit the use tax on such items directly to the department. It should be noted further that even if the taxpayer initially accepted delivery of the contested items in another state, they would have become subject to Virginia's use tax the moment they were brought into this state for use in the taxpayer's construction projects.
In addition, the facts of the Trotwood Trailers case cited above are readily distinguished from the facts in the present case. While the purchaser in that case came into the state of its vendor to accept delivery of the items purchased from the vendor, the taxpayer in this case accepted delivery of the items purchased outside the state of its vendor.
Based on the foregoing, I find no basis for correction of the instant assessment. A revised notice of assessment, together with accrued interest since the date of the assessment will be issued to the taxpayer under separate cover and will be immediately due and payable.
For the taxpayer's future reference, it should be noted that the Virginia General Assembly recently enacted a special state use tax on motor vehicles, machinery, tools, and equipment brought into Virginia for use in performing construction contracts. (See legislation enclosed). The rate of the special use tax is 3.5%, except for motor vehicles which are taxed at a rate of 3%; aircraft which are taxed at a rate of 2%,. and watercraft which are taxed at a rate of 2% with a maximum tax of $1,000. The tax is computed based upon the proportion of time that the property will be used in Virginia to its overall useful life. The current credit for sales tax paid to another state would not apply to the special tax. In addition, this special use tax would not apply to contractors from states that do not impose a similar tax on Virginia contractors. The department is currently developing the forms necessary for reporting this new special use tax.
Although the special use tax was not given retroactive effect and therefore has no bearing on the outcome of this case, since the taxpayer is a contractor from a state that imposes such a use tax on Virginia contractors, it is now subject to this special use tax. Therefore, whenever the taxpayer brings equipment, motor vehicles, aircraft, etc., purchased outside the state into Virginia for use in construction projects here, it will be subject to the special use tax.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner