Tax Type
Retail Sales and Use Tax
Description
Fabrication labor; Fire protection sprinkler system
Topic
Taxability of Persons and Transactions
Date Issued
03-09-1989
March 9, 1989
Re: §58.1-1821 Application: Sales and Use Tax
Dear*****************
This will reply to your letter of November 7, 1989 seeking the correction of an assessment issued in the above referenced case for the period April 1986 through February 1988.
FACTS
*********** ("The Taxpayer") installs fire protection sprinkler systems in Virginia. The Taxpayer purchases materials from outside vendors and from an intercompany fabrication plant located in North Carolina. The North Carolina plant charges for cutting pipe ************* or by outside manufacturers) to blue print specifications for a particular job and for threading and welding the pipe.
The Taxpayer accrued and paid use tax directly to Virginia on the materials the plant purchased, but paid no tax on fabrication labor. The Taxpayer, however, was held liable for the plant cost of pipe fabrication labor in the department's audit. The Taxpayer contests the inclusion of fabrication labor in the department's audit on the basis that the Taxpayer is a using or consuming contractor and is required to pay the tax only on the cost price of the raw materials which make up fabricated property that becomes incorporated in real estate construction as set forth in §58.1-610 of the Code of Virginia and Virginia Regulation 630-10-27(D).
DETERMINATION
VR 630-10-27(D) provides that "[a] fabricator who contracts to perform services with respect to real estate construction...is classified as a using or consuming contractor and must pay the tax on the cost price of the raw materials which make up such fabricated property." Based on the information presented, the Taxpayer is deemed a contractor who primarily fabricates tangible personal property for use and consumption in real estate construction contracts.
As such, the Taxpayer is liable for the tax on the cost price of raw materials used in the North Carolina plant. Therefore, I find basis for the removal of fabrication labor from the audit.
The department's audit will be revised as soon as practicable to reflect the determination reached in this letter.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner