Tax Type
Retail Sales and Use Tax
Description
Service station equipment; Government contractor
Topic
Exemptions
Property Subject to Tax
Date Issued
07-31-1991
July 31, 1991
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This will reply to your letter of December 27, 1990 in which you seek correction of a sales and use tax assessment on behalf of**************(the Taxpayer).
FACTS
The Taxpayer is engaged in the business of contracting and retailing with respect to sales, installation, service and repair of service station equipment. An audit for the period January, 1987 through December 1989 produced an assessment for the failure of the Taxpayer to remit tax in connection with a subcontract for the installation of tangible personal property for a gasoline island, canopy, valves and meter. The general contractor (the Corporation) was under contract with a tax-exempt entity of the Commonwealth (the District). The sub-contract was negotiated between the Taxpayer and the Corporation and the invoices for materials and installation were paid by the Corporation. The Taxpayer seeks reduction of the assessment on the basis that it received an exemption certificate from the Corporation in the name of the District for the tangible personal property purchased for use in the real property construction contract.
DETERMINATION
Virginia Regulation (VR) 630-10-27(J) provides that purchases of tangible personal property by contractors in connection with a real property contract for a governmental entity are considered sales to the contractors for their own use or consumption and as such are subject to the tax. This tax treatment applies whether the title passes to the governmental entity upon purchase to the government or if the contractor is reimbursed directly by the entity for the cost of the property. In the present case, the contract required that the Taxpayer provide and install a gasoline island, canopy, valves and meter. This transaction is characterized by the department to be real property construction (See, P.D. 87-131, (4/21/87)). While the title for the finished construction property will eventually pass to the District, the Taxpayer is using the property in performance of their contract and therefore is deemed to be the consumer of the property.
As the user and consumer of the materials the Taxpayer will be taxed on the cost price of the materials used in the performance of the contract. There is no evidence that the Taxpayer was acting as agent for the District, that the credit of the District was directly bound, or the District furnished the materials to the Taxpayer thereby allowing the Taxpayer any other exemption.
VR 630-10-27 provides that the burden of proving that a transaction is not taxable is on the taxpayer unless the taxpayer takes an exemption certificate in good faith. However, in the present case, the Taxpayer could reasonably know that the certificate was not valid because it clearly contradicted VR 630-10-27(J) and longstanding Virginia case law (See, United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd., 569 F. 2d 881 (4th Cir. 1978)). Therefore, the certificate was invalid.
The assessment will be revised however, to: (1) reflect the tax based on the cost price of the materials used in the real property construction contract, (2) credit the amount of sales tax already charged to the Corporation on the invoice of 4/29/88 to the assessment, and (3) remove the untaxed transactions from the sale exception portion of the audit and apply it to the purchase exception portion of the audit to reflect the use tax liability on the materials used or furnished in the subcontract. A revised assessment will be issued under separate cover.
If you have any questions concerning this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner