Tax Type
Retail Sales and Use Tax
Description
Florists and nurseries; Sod sales
Topic
Taxability of Persons and Transactions
Date Issued
07-24-1996
July 24, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in response to your letter of November 17, 1995 in which you seek correction of a sales and use tax assessment issued to ********** (the "Taxpayer"). I understand that the assessment of uncontested items has been paid.
FACTS
The Taxpayer operates as a heavy construction contractor. An audit for the period October 1991 through August 1995 resulted in an assessment for untaxed purchases of fixed assets and expensed items. The Taxpayer maintains that its purchases of certain fixed assets, primarily construction equipment, are exempt under the occasional sale exemption. In addition, the Taxpayer questions the assessment of (1) the purchase of sod from a subcontractor, and (2) purchases which you indicate were delivered by vendors to locations outside of Virginia.
DETERMINATION
Each of the issues raised by the Taxpayer will be addressed separately as follows:
Purchases of Equipment
The Taxpayer identified six vendors from whom assets were purchased. Generally, these vendors are other construction companies which have made periodic sales of their equipment. The Taxpayer maintains that most of these sales are exempt occasional sales.
Code of Virginia § 58.1-609.10(2) provides an exemption from the tax for an occasional sale. An "occasional sale" is defined in § 58.1-602 to mean:
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- A sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration, including the sale or exchange of all or substantially all the assets of any business ... or the liquidation of any business, provided such sale or exchange is not one of a series of sales and exchanges sufficient in number, scope and character to constitute an activity requiring the holding of a certificate of registration.
This exemption is further addressed in Virginia Regulation (VR) 630-10-75 which indicates that the purchase of an item in a transaction which is deemed to be an occasional sale "shall likewise not be liable for any use tax on such purchase."
With this in mind, each of the protested equipment purchases will be addressed. The transactions will be discussed in the same order as presented in your correspondence.
Transaction 1: In April 1994, the Taxpayer purchased a backhoe, lazer transit, and other equipment from a Virginia construction company. A letter from that company claims that it sold the Taxpayer substantially all of its assets and that it liquidated its business. Based on the information before me, the sale of these items is an exempt occasional sale and will be removed from the assessment.
Transaction 2: In February 1995, the Taxpayer purchased a Gradual G-660 from a Virginia construction company. Based on the information before me, this seller is not regularly engaged in making sales. The infrequent sales of equipment, such as the protested sale made to the Taxpayer, is not sufficient in number, scope and character requiring the holding of a certificate of registration. Accordingly, this transaction is deemed to be an exempt occasional sale and will be removed from the assessment.
Transaction 3: In June 1992, the Taxpayer purchased three cranes from a Virginia equipment rental company. For the reasons discussed under Transaction 2, the purchase of the cranes from this seller is deemed to be an exempt occasional sale and will be removed from the assessment.
Transaction 4: The Taxpayer purchased a generator from this North Carolina vendor and was charged the North Carolina sales tax. The Taxpayer maintains that the generator was picked up in North Carolina - in which case the North Carolina tax applies. The invoice, however, indicates that the generator was delivered to the Taxpayer in Virginia. Based on that invoice, the assessment of this purchase is correct.
Transaction 5: In January 1994, the Taxpayer purchased a crane from the Virginia location of a major manufacturer. A letter from the seller dated January 1994 indicates that it rarely sells equipment.
Unlike the equipment purchased from other Virginia contractors, the seller in this case is a dealer which holds certificates of registration authorizing it to collect the tax on its sales. As noted in VR 630-10-75, a registered dealer "is not entitled to an occasional sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise [the dealer] regularly sells."
I cannot agree that this transaction is an occasional sale. The seller produces and sells a very wide range of products, and there is no evidence indicating that the crane was not used in a registerable activity. Further, this seller has locations throughout Virginia. While one location may make infrequent sales of equipment, it is reasonable to assume that the seller regularly makes sales of equipment state-wide. Accordingly, this transaction is deemed to be correct as assessed.
Transaction 6: In January 1993, the Taxpayer purchased a loader and an excavator from another Virginia construction company. For the reasons discussed under Transaction 2, this purchase is deemed to be made as part of an exempt occasional sale and will be removed from the assessment.
Transaction 7: In June 1993, the Taxpayer purchased a grader from another Virginia contractor. For the reasons discussed under Transaction 2, this purchase is deemed to be made as part of an exempt occasional sale and will be removed from the assessment.
Purchase of Sod
Transaction 8: The Taxpayer, as the general contractor, contracted with a subcontractor for the sale and installation of sod and was assessed for the purchase of sod. Under the terms of the contract, the subcontractor appears to have been responsible for the installation of sod, seed, fertilizer, lime, and other related materials. The Taxpayer maintains that the subcontractor provided a nontaxable service and that the subcontractor was responsible for paying the tax to its suppliers on its purchases of sod and other materials. A letter dated October 1995 from the subcontractor indicates that it also viewed the subcontract as the sale of a service and that it paid the tax to its suppliers on the purchase of sod.
The application of the tax to the transactions set out in the Taxpayer's contract are addressed in VR 630-10-40. This regulation provides that:
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- When a nurseryman, florist or other person makes retail sales of shrubbery and similar items, and as a part of the transaction agrees to transplant them on the land of the purchaser for a lump sum, the tax applies to the total charge. The tax does not apply to the charge for transplanting if the charge is separately stated on the invoice.
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- This regulation goes on to state in subsection (C) that:
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- Any landscaper, nurseryman, or contractor who goes beyond the sale and planting of shrubbery, sod, etc. and contracts to grade, seed and fertilize lawns or to provide periodic fertilizing or weed killing treatments is deemed to be a consumer of all tangible personal property used in performing such service and must pay the tax on such property at the time of purchase.
As can be seen from the above, a landscape contractor is a retailer with respect to plant materials sold and transplanted by him in the performance of a contract. It is only when a landscape contractor goes beyond transplanting, and provides fertilizing, mulching, seeding, weeding, etc., that he becomes a using or consuming contractor, and only for those items consumed in providing such services. This is the long-standing and consistent policy of the department as shown in rulings of the Tax Commissioner enclosed as Public Documents 87-130 (4/21/87) and 94-222 (7/18/94).
The primary object of the contract was the one-time purchase of the sod and not the personal services of the subcontractor. As such, the assessment with respect to the Taxpayer's purchase of sod is correct. Nor can I agree in this instance to remove the assessed tax based on the subcontractor's statement that the tax was paid on the purchase of the sod. First, it is evident that the tax paid by the subcontractor was paid on the cost price of the sod. The Taxpayer, however, is required to pay the tax on the sales price charged by the subcontractor, including any mark-up on the product sold.
Also, it appears that the subcontractor erroneously paid the tax to its suppliers on the purchase of the sod, and the subcontractor may apply to that vendor for a refund of the erroneously paid tax (provided that the refund request is within the statute of limitations).
Deliveries Outside Virginia
The Taxpayer was assessed the tax on purchases from three North Carolina vendors and indicates that these purchases were delivered to locations outside of Virginia.
Transaction 9: Based on the invoice provided with your correspondence, the purchase of traffic safety signs will be removed from the assessment.
Transaction 10: In this transaction, the Taxpayer purchased diesel fuel for off--road use. The vendor charged a 1% Virginia tax, and the auditor assessed the 3.5% difference. It appears that the vendor erroneously charged the 1% tax pursuant to VR 630-10-40.2, fuels for domestic consumption.
Based on the evidence before me, I find no grounds to remove this item from the assessment. If the Taxpayer can provide invoices which clearly show that the fuel was delivered by the vendor to a North Carolina location, the department will certainly review those invoices and make any necessary adjustments to the assessment.
Transaction 11: The Taxpayer purchased supplies and was charged the North Carolina tax. The auditor indicates that the North Carolina tax was erroneously charged and so he assessed the Virginia tax. You maintain the property was picked up at the vendor's location in North Carolina and that this vendor does not deliver into Virginia.
As with Transaction 10, the department will review any invoices you can provide indicating that these items were delivered to the Taxpayer outside of Virginia. Without such documentation. however. I cannot remove these charges from the assessment.
Summary
Based on this determination, the purchases made under Transactions 1,2,3,6,7,and 9 will immediately be removed from the assessment. A revised assessment will be issued and sent to the Taxpayer as soon as possible. Furthermore, if the Taxpayer can provide additional documentation regarding Transactions 10 and 11 showing that these transactions are erroneously assessed, additional revisions will be made. This documentation should be sent to the auditor within 60 days of the date of this letter
If you have any additional questions regarding this letter, you may contact********in my office of Tax Policy at*********.
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Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10612I
Rulings of the Tax Commissioner