90-42 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Carpet and floor coverings

Topic

Taxability of Persons and Transactions

Date Issued

03-19-1990

March 19, 1990

Re: Ruling Request: Sales and Use Tax

Dear ****

This will reply to your letter of June 14, 1989 seeking a ruling on the application of the sales and use tax to floor covering purchases made by **** (the "taxpayer").

FACTS

The taxpayer, a general contractor, contracts with a subcontractor for the installation of carpet and floor covering in new construction. The subcontractor generally uses the tack strip or stretch-in method to install carpet and similar floor coverings. However, when installing tile, linoleum, vinyl, etc., the subcontractor either glues down or cements such floor coverings into place. The subcontractor neither owns nor operates any retail sales outlets for the sale of floor coverings.

The subcontractor maintains no inventory of floor coverings except to the extent of any surplus left over at the end of certain projects which it typically reallocates to other projects.

The taxpayer asks that its floor covering subcontractor be treated as a using and consuming contractor, and thus not be required to charge sales tax on its sales to the taxpayer. In the alternative, the taxpayer asks that the subcontractor be treated as a retailer of the carpet and floor covering which it installs by either the tack strip or stretch-in methods but as a contractor of the tile, linoleum, vinyl, etc., which it either permanently glues down or cements into place.

RULING

Virginia Code §58.1-610 sets forth the general rule that contractors are taxable on their purchases of tangible personal property for use or consumption in real property construction.

However, Virginia Retail Sales and Use Tax Regulation (VR) 630-10-27(G) provides special rules to be followed by sellers and installers of floor coverings such as the subcontractor in this case. Under this regulation, "[a] retailer selling and installing...floor coverings (as distinguished from floors themselves)...is not classified as a using or consuming contractor with respect to them." (Emphasis added)

For purposes of this subsection of the regulation only. the term "retailer" is defined as:

- any person who maintains a retail or wholesale place of business, an inventory of...[floor coverings], and/or materials which enter into or become a component part of...[floor coverings] and who performs installation as part of or incidental to the sale of the...[floor coverings]. As so defined. a retailer is not classified as a using or consuming contractor with respect to installations of...[floor coverings] .

However, the regulation continues, "[p]ersons who are not classified as retailers within the definition set forth above and who sell and install...[floor coverings] are deemed to be contractors and must pay the sales tax on such items at the time of purchase."

Based solely on the facts presented, since the floor covering subcontractor in this case maintains no retail place of business and no regular inventory of floor coverings for sale at retail on an uninstalled basis, it should treat itself as a using and consuming contractor of all floor coverings which it installs in the taxpayer's projects, regardless of the installation methods used. Thus, the taxpayer's subcontractor is required to pay sales tax on all floor coverings and other materials consumed in connection with the installation of floor coverings, and the taxpayer is not required to pay the tax to its subcontractor for the floor coverings installed by the subcontractor. However, if it is determined in any future audit of the taxpayer that the subcontractor's method of doing business varies in any respect from the facts set forth above, the taxpayer may be liable for the tax.

Please let the department know if you have any further questions.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner