Tax Type
Retail Sales and Use Tax
Description
Paving contractor with asphalt sales
Topic
Taxability of Persons and Transactions
Date Issued
10-29-1990
October 29, 1990
Re: §58.1-1821 Application/ Sales and Use Tax
Dear**************
This will reply to your letter seeking the correction of an assessment issued to your client ******************** (the Taxpayer"), for the period September, 1983 through August, 1986 as a result of an audit by the department.
FACTS
The Taxpayer is a contractor engaged in the business of paving highways. In the course of its business, the taxpayer manufactures asphalt principally for use in its construction projects; however, a small amount of the asphalt is sold to other consumers. The Taxpayer pays the sales tax to its suppliers at the time of purchasing the raw materials used to manufacture the asphalt. The Taxpayer contests the disallowance of credits for the tax paid on the raw materials incorporated in the portion of asphalt sold to the other consumers. The Taxpayer contends that the department's regulations limit the resale and industrial manufacturing exemptions in contravention of Virginia Code §58.1-610.
DETERMINATION
Please find enclosed copies of prior ruling letters issued by the department (Public Documents 85-163 and 85-199) which discuss issues similar to those presented in your letter.
The industrial manufacturing exemption set forth in Va. Code §58.1-608(3)(b) is limited to items used in the manufacture of goods for sale or resale. In this regard, Virginia Regulation (VR) 630-10-27(A), consistent with Va. Code §58.1-610, specifies that a sale to a contractor of tangible personal property that will be incorporated into real estate is deemed a sale to the ultimate consumer (contractor), and not a sale for resale by the contractor. Therefore, as a contractor principally purchasing materials in connection with real property construction contracts, the Taxpayer would generally have to pay the tax to its suppliers at the time of purchase unless the materials could be identified at the time of purchase as items that would actually be resold to customers.
VR 630-10-27 reflects the department's long-standing policy with regard to the application of the tax to contractors. This regulation interprets and is not inconsistent with the provisions of Virginia Code §58.1-610. As noted in the enclosed rulings, §E of the regulation, reproduced below in part, clearly provides for items purchased for resale by contractors:
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- Such person is entitled to purchase exempt from the tax only that tangible personal property which can be identified at the time of purchase as purchases for resale. If the person is unable to identify at the time of purchase the tangible personal property which will be resold, such person is required to pay the tax to his supplier. If at a later date, the person sells the tangible personal property at retail, the tax is collected upon the retail selling price. Such persons are not entitled to credit for the tax paid to suppliers since the transactions are separate and distinct taxable transactions. Emphasis added.
However, for contractors who are unable to segregate materials for resale and those for their own use at the time of purchase, the regulation provides that such contractors are entitled to apply to the department for direct payment permits to pay any tax directly to the state and avoid the collection of tax by suppliers. Absent a direct payment permit, the tax applies to all purchases, with no credit available at a subsequent date for the items eventually sold.
In this case, there is no evidence that the materials in question were identified at the time of purchase as items that would actually be resold to customers or that such materials were purchased under a direct payment permit. Accordingly, based on all of the foregoing and the department's long-standing policy as reflected by the above regulation and enclosed rulings, I do not find basis for correction of the assessment.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner