Tax Type
Retail Sales and Use Tax
Description
Interstate transactions; Sign construction and installation
Topic
Taxability of Persons and Transactions
Date Issued
06-14-1996
June 14, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear**************
This will reply to your letter in which you request a ruling concerning the application of the retail sales and use tax to the fabrication of signs in Virginia.
Signs Affixed to Realty
A sign manufacturer must pay the sales tax on the cost of all materials, supplies and equipment used in the fabrication of a sign that is permanently affixed to realty, pursuant to Virginia Regulation (VR) 630-10-100, which provides:
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- Any person who constructs and installs signs, billboards or similar items which, upon installation, become incorporated into realty is a contractor with respect to such items. No tax is applicable to the charge for constructing and installing a sign which becomes attached to realty, but the person constructing and installing the item must pay the tax on all property used in the construction and installation.
The sign manufacturer should not charge the sales tax to a customer on the contracted sales price of the sign. Examples of signs that are affixed to realty include neon signs permanently mounted to the exterior wall of real property, a free standing pole sign permanently embedded in concrete, neon or fluorescent cove lighting installed inside a building, light fixtures permanently attached to the side of a building, signs painted on the side of a building, and awnings attached to real property.
Signs That Remain Tangible Personal Property
VR 630-10-100 provides that charges to customers for signs that are not affixed to real estate are subject to the sales tax. The tax applies to the total charge for the finished product including labor involved in the construction or painting of the sign. Materials that become an integral part of fabricated signs may be purchased exempt of the sales tax. Examples of such signs include neon signs hanging from an interior window, free standing pole signs, and banners hung from the exterior of real property.
Installation Charges
A charge to install a sign or replacement parts for a sign that is permanently affixed to real property is exempt from the sales tax. A charge to install a sign or replacement parts for a sign that is not permanently affixed to real property is subject to the sales tax unless the installation charge is separately stated.
Materials Used in Installation
Supplies and materials used and consumed by the sign contractor in the installation of signs are subject to the sales tax regardless of whether the sign is affixed to realty or remains tangible personal property.
Sign Subject to Sales Tax in Another State
Code of Virginia § 58.1-609.3(1) exempts from the sales and use tax purchases of construction materials, temporarily stored in Virginia, by a contractor which are to be used solely outside Virginia in an exempt construction project. The exemption is restricted to construction materials that are to be incorporated into exempt real property construction and could be purchased tax free by the contractor in the other states.
When materials are fabricated into a sign in Virginia, a "use" occurs in Virginia, and the materials are subject to tax on the cost price. This holds true when the sign will be transported to another state for installation. It is recognized that, in some instances, a double taxation situation may arise - use tax is owed to Virginia by the sign contractor, who is the user and consumer of the materials, and sales tax is owed to an out-of-state taxing authority that treats the sale of the sign as a retail sale. This double taxation may be relieved to the extent the taxing authority of the other state allows a credit for the use tax paid to Virginia.
While mindful of the competitive disadvantage under which the Taxpayer may be placed, the department is bound by the statutes enacted by the General Assembly, as interpreted in the department's regulations. Currently, there is no statutory or regulatory authority to exempt the purchase of materials used in Virginia to fabricate a sign which will be installed in another state. If you are interested in pursuing exemption legislation during the 1997 General Assembly session, the enclosed questionnaire for legislative consideration of a sales and use tax exemption should be completed and forwarded to the legislator who will sponsor the bill for exemption. The legislator must sign the questionnaire and submit it to the department by November 1, 1996. Tax Bulletin 94-13, which explains the procedure and information required for consideration of exemption requests, is also enclosed.
Direct Pay Permit
If it cannot be determined at the time of purchase whether materials will be used to fabricate signs to be permanently affixed to real estate, VR 630-10-27(E) allows a taxpayer to apply to the department for a direct payment permit. When the Taxpayer furnishes the direct payment permit to a supplier, sales tax will not be charged on any materials purchased. In turn, the Taxpayer will remit the sales tax directly to the department on materials used in Virginia to fabricate signs affixed to real estate, installation materials, supplies and other tangible personal property. Enclosed is P.D. 92-93 (6/5/92), which explains the use of the direct payment permit.
In your letter, you suggest possible solutions for sales tax relief in situations in which a sign is treated as real estate in Virginia and a retail sale in another state. You suggest that the Taxpayer be exempt from the sales tax when supplies are purchased and remit the sales tax when items are withdrawn from inventory. The use of a direct payment permit, described above, adequately addresses this situation.
You suggest that the Taxpayer be reclassified as a fabricator (manufacturer) of signs and charge the sales tax when signs are invoiced. Additionally, you suggest that all signage be treated as tangible personal property, with sales tax charged to the end user. However, when a sign is clearly affixed to realty, there is no statutory authority in Virginia for the contractor to charge the sales tax to its customer and be relieved of paying the sales tax on the cost of materials.
Interstate Commerce
VR 630-10-51 provides that sales qualifying for the interstate commerce exemption include those in which delivery is made to the purchaser outside Virginia in the seller's vehicle, by an independent trucker or contract carrier hired by the seller, or by the U.S. Post Office or a common carrier. Furthermore, the exemption applies only to sales in which first use of the property occurs outside the Commonwealth. The Taxpayer is not subject to Virginia sales tax if a supplier delivers materials (by one of the methods indicated above) to the Taxpayer's job site located outside Virginia, and the Taxpayer does not take physical or constructive possession of the materials in Virginia.
Out-of-State Sign Company
If the Taxpayer takes possession of materials in Virginia for use in the fabrication of signs to be affixed to real property, the materials are taxable even if the sign will be installed in another state by an out-of-state sign company pursuant to a contract with the Taxpayer.
I trust this answers your questions. If you have additional questions regarding this matter, you may contact ******** at**********
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Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8294F
Rulings of the Tax Commissioner