Tax Type
Retail Sales and Use Tax
Description
Contractors' Use Tax
Topic
Basis of Tax
Date Issued
03-09-1989
March 9, 1989
Re: Request for Ruling: Sales and Use Tax
Dear*****************
This will reply to your letter dated October 18, 1988 in which you requested a ruling on the imposition of the special use tax on equipment brought into Virginia for use in performing construction contracts.
RULING
***********("The Taxpayer") is a North Carolina company doing business in Virginia and subject to the special use tax on equipment brought into Virginia for use in performing contracts. The Taxpayer maintains that a legally binding contract for a fixed period of time is "satisfactory evidence" which supports the amount of time equipment will be used in Virginia. The Taxpayer contends that the following formula should be allowed to compute the basis of the tax owned by the Taxpayer:
Cost of Equipment X Remaining Contract Period = Taxable Amount
Total Useful Life
RULING
Total Useful Life
RULING
The special use tax on equipment brought into Virginia for use in constructing, building or repairing any building, highway, sewer or water system, hydraulic or power plant, etc. applies to property purchased or leased in another state and brought into Virginia. The special use tax is computed based on three factors: the original purchase price of the property, the amount of time the property is used in Virginia, and the overall useful life of the property. The tax is computed based on the relative time the property is in Virginia as opposed to actual use.
As set forth in §58.1-604.1 of the Code of Virginia, "[i]n the absence of satisfactory evidence as to the period of use intended in this Commonwealth, it will be presumed that such property will remain in this Commonwealth for the remainder of its useful life. (Emphasis added.)
A contract with specific beginning and ending dates will be considered satisfactory evidence as to the duration of time property will be used in Virginia. However, in the case of an open-end contract which contains no stated date of completion, it will be presumed that property will remain in Virginia for the remainder of its useful life.
The formula for computing the tax is as follows:
-
- Original Purchase Price x Duration
of Time of Use in Virginia = Taxable Base X Tax Rate = Tax Total Useful Life
- Original Purchase Price x Duration
If you have any further questions regarding the application of the special use tax, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner