Tax Type
Retail Sales and Use Tax
Description
Subcontractor; Use tax
Topic
Taxability of Persons and Transactions
Date Issued
04-12-1990
April 12, 1990
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ****
This will address your letter dated August 1, 1989 on behalf of **** ("taxpayer"), seeking correction of a sales and use tax assessment for the period October 1985 through August 1988.
FACTS
The taxpayer, a general contractor, was audited and held liable for the applicable consumer use tax on untaxed purchases of materials to be used in the construction of an apartment building located in Virginia.
The taxpayer contests the tax assessed relating to transactions with a vendor for the delivery and installation of a trash compactor and the delivery of a trash chute for the apartment building. The invoice provided by the vendor and paid by the taxpayer does not separately state the amount of sales tax paid. The taxpayer, relying upon a purchase order prepared by the taxpayer which states that the total purchase price would include "freight and taxes," contends that sales tax has been paid. The taxpayer has requested an amended invoice from vendor, but has not yet received one.
In addition, the taxpayer contests tax assessed on purchases of ductwork, furnace and/or register material by a subcontractor, from two dealers. The contract by and between taxpayer and subcontractor was a fixed price contract under which the subcontractor agreed to provide all labor, material and equipment necessary to complete the heating, ventilation and air conditioning (HVAC) work on the building. The contract provides that the subcontractor was responsible for the payment and proper filing of all applicable taxes out of the fixed contract price.
As an accommodation to its subcontractor, the taxpayer agreed to issue joint checks to its subcontractor and the equipment vendors referenced above. Those payments were made as part of the fixed price of the contract, and proportionally reduced the amounts available to the subcontractor under the contract. The taxpayer maintains that the legal incidence of the sales and use tax in question should be placed on his subcontractor since he was not engaged directly in contracting with a particular vendor of his subcontractor and that he had no control over the procurement of the property beyond the initial provision of the specifications.
DETERMINATION
Since the tax was not separately stated on the ***** contract invoices from the taxpayer's vendor and no further documentation has been received from the vendor, the department has been unable to verify that the proper amount of tax was paid on the purchases.
Virginia Sales and Use Tax Regulation §630-10-109 specifically provides that "[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." In addition, §630-10-27(A) of the regulations provides, "[i]f a supplier of a contractor doing work in Virginia does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier". Furthermore, in United States v. Forst, the courts opinion clearly states that "the legal incidence of the Virginia ... tax ... is on the purchaser." Therefore, while the vendor was obligated under Virginia Code §58.1-625 to collect the tax on its sales to the taxpayer, the department may proceed against the taxpayer for payment of the use tax.
Based on the foregoing, I find no basis for correction unless the taxpayer can demonstrate that its vendor collected and paid the sales tax to the department. In lieu of revised invoices, the department will accept a letter from the vendor stipulating that the sales tax was collected on the transactions, that it was registered to collect the sales tax at the time the transactions occurred, and that the tax collected was remitted to the department. Evidence as to the collection of the tax should be submitted to the department's Technical Services Section at P. o. Box 6-L, Richmond, Virginia 23282 within the next 30 days.
The vendor invoices supplied for the HVAC items purchased bear only the subcontractor's name and make no mention of the fact that the subcontractor was purchasing the items on behalf of the taxpayer. Moreover, none of the documentation remitted suggests that the taxpayer's contractual agreement with subcontractor was intended to make the taxpayer directly liable for the payment of vendors on purchases made by the subcontractor under the contract.
Based on the circumstances presented, I find basis for the correction of the assessment to remove the amounts with respect to the contested HVAC purchases made by the subcontractor.
Upon the receipt of the requested information by the Technical Services Section, the audit will be revised.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner