Tax Type
Retail Sales and Use Tax
Description
Construction; Theme park repairs
Topic
Taxability of Persons and Transactions
Date Issued
06-07-1996
June 7, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letters in which you seek correction of a retail sales and use tax assessment for ***** (the "Taxpayer") for the period October 1990 through May 1994.
FACTS
The Taxpayer owns and operates theme parks throughout the United States, including Virginia. An audit of the Taxpayer revealed untaxed purchases of items used in the repair, improvement and maintenance of park attractions, including rides. The auditor treated these items as tangible personal property and assessed use tax. The Taxpayer protests the assessment, claiming that the items are incorporated into and became part of real estate. The Taxpayer believes the contractors furnishing the materials to repair the attractions are responsible for the tax, pursuant to Code of Virginia § 58.1-610(A).
DETERMINATION
In determining whether an article used in connection with realty is to be considered real or personal property, the Virginia Supreme Court has ruled:
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- Three general tests are applied to determine whether an item of personal property placed upon realty becomes itself realty. They are: (1) annexation of the property to realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties.
Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970).
Under the first test, there must be actual or constructive annexation; the method or extent of the annexation carries little weight. The second test, adaptation of the personal property to the use of the property to which it is annexed, is entitled to great weight, especially in connection with the element of intention. The intention of the party making the annexation is the paramount and controlling consideration. Danville Holding Corp. v. Clement, 178 Va. 223, 16 S.E.2d 345 (1941).
In light of this background, I will now address the issues raised in your letter.
Park rides
Based on the information provided, it is clear that the first two tests cites above have been satisfied. The park rides are annexed to concrete supports embedded in the earth. In addition, the rides are essential to the purpose for which the land is used (a theme park) and are custom designed for the topography of the location.
When determining intent in the law of fixtures, Virginia courts have relied on the presumption which concerns the relationship of the annexor and the subject realty. Where the owner of realty annexes chattels, any doubt as to his intention to permanently affix them will be resolved in favor of such intent, upon the theory that he seeks to permanently enhance the usefulness and market value of this property. Danville Holding Corp., 178 Va. at 233 (citing 1 Minor on Real Property, section 36 (2nd edition)).
In this case, the rides have been in place for a number of years and enhance the usefulness of the property. There is no evidence to rebut the presumption that the Taxpayer intended to permanently improve the realty to which the rides were annexed. Based on the nature of the items affixed (park rides) and the purpose for which it was affixed (use in a theme park), the relationship of the party making the annexation (the owner of the land) and the method of annexation, I find that the Taxpayer intended to permanently affix the park rides fixtures to the realty.
Code of Virginia § 58.1-610(A) provides that any person who contracts to perform construction, installation, repair, or any other service with respect to real estate or fixtures thereon is deemed to be the taxable user or consumer of any property furnished in connection with the work. As such, the contractor or subcontractor performing the work does not collect the sales tax from his customer but instead pays the tax on his purchases of materials used in the construction, installation, or repair work.
Because the materials furnished for the park rides constitute a repair or improvement to real property fixtures, the contractor performing the work is responsible for paying the tax on his purchases of materials. Accordingly, the assessment against the Taxpayer will be adjusted to remove materials incorporated into the park rides.
Trash receptacles and podiums
The trash receptacles at issue are theme specific to a particular park area and are bolted to the ground. The podiums are screwed into the walls of certain structures.
While these items are annexed to real property, and the owner of the property made the annexation, it does not appear that the trash receptacles and podiums are essential to the operation of a theme park (the purpose for which the realty is used). I cannot agree with your position that these items constitute real estate fixtures. The auditor properly treated these items as tangible personal property and assessed the Taxpayer use tax.
Accordingly, the assessment will be revised to remove the tax assessed on materials used in the repair or improvement of park rides. You will shortly receive an updated bill with interest accrued through October 21, 1994 (the date of the Taxpayer's letter). If you have any questions regarding this matter, you may contact ***** at ****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8680F
Rulings of the Tax Commissioner