Tax Type
Retail Sales and Use Tax
Description
Contractors; Gasoline tank leak detectors
Topic
Taxability of Persons and Transactions
Date Issued
02-09-1993
February 9, 1993
Re: Request for Ruling: Retail Sales and Use Tax
Dear*****:
This will reply to your letter of October 7, 1991 in which you request a ruling on the application of the retail sales and use tax to * * * (the "Taxpayer').
FACTS
The Taxpayer tests underground gasoline tanks and leak detectors which are used by station owners. Under federal regulations, underground gas tanks and the connecting gas delivery lines must have a leak detector connected to them. This leak detector shuts down the pump in the event that there are leaks in either the tank or the gas delivery line. The Taxpayer performs two pressure tests, one on the gas delivery line and one on the leak detector. The testing is done by one of the Taxpayer's employees, who goes down to the underground tanks via a metal hatch. In performing these tests, the employees occasionally have to replace a defective leak detector.
You request a ruling on the application of the retail sales and use tax to the leak detectors which the Taxpayer replaces. The Taxpayer currently pays sales tax on the leak detectors when it purchases them.
RULING
Virginia Regulation (VR) 630-10-27(G) provides that a "person selling and installing tangible personal property that becomes real property after installation is generally considered a contractor . . .' A contractor is defined in VR 630-10-27(A) as "any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon . . .' (Emphasis added). The question in this case is whether the testing of underground tanks, gasoline delivery lines and leak detectors is a service with respect to real estate or fixtures thereon.
In determining whether an article used in connection with realty is to be considered real or personal property, the intention of the party with respect to the item in question is the paramount consideration. See Transcontinental Gas Pipe Line Corp. v. Prince William County, 210 Va. 550 (1970). It is apparent that the underground tanks, gasoline delivery lines and leak detectors are intended to be permanently affixed to the realty. Therefore, they are deemed to be real estate fixtures.
Thus, in the instant case the testing of the underground tanks, gasoline delivery lines and leak detectors is a service with respect to real estate fixtures, and the Taxpayer is deemed to be a contractor, rather than a retailer, with respect to this service.
Accordingly, as a contractor, the Taxpayer is the user and consumer of all tangible personal property furnished to or by it in connection with the installation of the leak detectors and should pay the tax to its suppliers at the time of purchase of such property. The Taxpayer is not required to charge and collect sales tax on the leak detectors it installs. The Taxpayer should continue to pay the sales tax on the leak detectors when it purchases them.
If you have any questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner