Tax Type
Retail Sales and Use Tax
Description
Steel fabricator
Topic
Taxability of Persons and Transactions
Date Issued
04-10-1989
April 10, 1989
Re: Ruling Request/ Sales and Use Tax
Dear********************
This will reply to your letter of December 19, 1988 in which you seek a ruling on behalf of *******(taxpayer).
FACTS
The taxpayer is a fabricator of steel products for use exclusively in real property construction contracts. The taxpayer cuts, drills and bends raw steel beams and plates to contractors specifications and drawings. In a conversation with a member of my Tax Policy Division staff you recently indicated that the taxpayer fabricates such items both for its own use in real estate construction and for sale to other contractors.
You ask for confirmation of your understanding that the taxpayer qualifies for treatment as a fabricator/contractor under Virginia Retail Sales and Use Tax Regulation (VR) 630-10-27(D).
RULING
Based on the information provided, the taxpayer more properly falls within the provisions of section E of VR 630-10-27, copy enclosed, which provides in part that a fabricator:
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- [W]ho operates in a dual capacity of fabricating tangible personal property for sale or resale and fabricating for his own use and consumption in the performance of real property construction contracts shall follow a primary purpose rule based on gross receipts in determining sales and use tax application. (Emphasis added)
- [W]ho operates in a dual capacity of fabricating tangible personal property for sale or resale and fabricating for his own use and consumption in the performance of real property construction contracts shall follow a primary purpose rule based on gross receipts in determining sales and use tax application. (Emphasis added)
A fabricator is deemed to be fabricating principally for sale or resale if more than 50% of his gross receipts are derived from making sales of fabricated products to other contractors. Such a fabricator must add the sales tax to the sales price and collect it from his customer for payment to the state. Such a fabricator may also purchase under resale certificate of exemption any raw materials, component parts and other tangible personal property which he knows at the time of purchase will be fabricated for sale subject to tax. However, under VR 630-10-27(B), he may not purchase under a resale certificate of exemption any tangible personal property which he knows at the time of purchase will be used by him in a specific contract.
If such a fabricator converts any products, the components of which were initially purchased exempt of the tax, to his own use or consumption, he must pay the tax, "based on the fabricated cost, (i.e., the cost to him) computed by totaling the cost of materials, labor and overhead charged to work in process." (Emphasis added) See, VR 630-10-37 enclosed.
Fabricators Fabricating Principally for Use or Consumption
A fabricator is deemed to be fabricating principally for his own use or consumption, if more than 50% of his gross receipts are derived from the fabrication of products for his own use in real estate construction. Such a fabricator is classified as a using and consuming contractor and must pay the tax to his suppliers based on the cost price of the raw materials which make up such fabricated property. If a supplier of such a fabricator is either not registered with the department or fails to collect the tax, the tax must be remitted by the fabricator directly to the department using Form ST-7, Consumer's Use Tax Return, copy enclosed.
Direct Pay Permits
A fabricator who fabricates both for sale to contractors as well as for his own use and consumption may apply to the department for a direct pay permit, "if his purchases are made under circumstances which normally make it impossible at the time of sale to determine the manner in which such property will be used." (See, VR 630-10-34) If the taxpayer in this case meets this requirement, he may apply to the department for a direct pay permit.
For your further information I have enclosed a copy of Virginia Tax Bulletin 88-11 concerning a new special use tax on construction equipment brought into Virginia, which became effective on March 30, 1988. I hope that the foregoing and the enclosed materials have responded to your questions, but let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner