Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Nonprofit universities
Topic
Taxability of Persons and Transactions
Date Issued
04-19-1996
April 19, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear*************
This will reply to your letter of November 13, 1995 in which you seek a ruling on the application of the tax to tangible personal property purchased by the **********(the "Taxpayer").
FACTS
The Taxpayer is a state university located outside of Virginia. In addition, the Taxpayer functions as a government contractor and operates a government laboratory under a direct cost contract with the United States.
You maintain that the Taxpayer may purchase tangible personal property used in connection with this contract exempt of the tax. First, you indicate that title to all tangible personal property purchased under authority of the contract passes to the government and that such purchases are therefore exempt purchases for resale. Further, the Taxpayer suggests that as an institution of learning it may purchase such property exempt of the tax under the educational exemption set out in Code of Virginia § 58.1-609.4(2). Finally, I understand that you recently spoke with a member of my staff whereby you questioned taxes charged to the Taxpayer by a Virginia hotel for the purchase of accommodations.
RULING
Each of the issues raised by the Taxpayer will be addressed separately as follows:
Purchases by Government Contractors: The department has previously ruled that in considering the tax treatment of government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. In making such a determination, the department considers the entire contract, including any addenda or task orders, as one transaction which is either taxable or exempt. The amount of tangible personal property transferred relative to the overall value of the contract has no bearing on the tax status of the contract. Instead, the "true object" of the transaction as described in Virginia Regulation (VR) 630-10-97.1 is used to determine whether the contract is for the sale of tangible personal property or for the provision of some service.
As explained in Public Documents 88-159 (6/23/88) and 94-155 (5/23/94), if a contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its services, even though title to some or all of the property may pass to the government. Conversely, if a contract is for the sale of tangible personal property to the government, the contractor may purchase such property exempt from the tax under a resale exemption certificate. The subsequent resale of that property to the government is exempt from the tax under Code of Virginia § 58.1-609.1(4) which provides an exemption for sales of tangible personal property to the Commonwealth and the federal government.
There is not enough information in your correspondence to determine if the Taxpayer's contract with the United States is for the provision of services or for the sale of tangible personal property. Nevertheless, and as addressed below, even if the contract is for the provision of services, purchases by the Taxpayer may be exempt under the educational exemption set out in Code of Virginia § 58.1-609.4(2).
Purchases by Institutions of Learning: Code of Virginia § 58.1-609.4(2) provides an exemption from the tax for "tangible personal property for use or consumption by a [nonprofit] college or other institution of learning...." As a state supported university, the Taxpayer is an "institution of learning" as envisioned in this statute. Accordingly, the Taxpayer may make exempt purchases of tangible personal property for its own use or consumption, including property purchased to satisfy its government contract obligations.
As a precaution, however, please see the enclosed Public Document 87-132 (4/21/87) which addresses government contract purchases made by an association of colleges. In that case, the association was not itself an "institution of learning" and was therefore not able to enjoy the exemption set out in 58.1-609.4(2). Similarly, the exemption would not extend to purchases made by an organization associated with the Taxpayer, even if that organization was organized as a nonprofit entity.
Purchase of Accommodations: I have enclosed Public Document 89-201 (7/28/89) which addresses the issue of hotel accommodations purchased by government agencies, universities, and other nonprofit organizations. As noted, charges for hotel accommodations are generally taxable. The only exceptions to this general rule are: (1) Purchases of accommodations by the federal government, provided such purchases are made pursuant to official purchase orders and paid for out of public funds, and (2) purchases of accommodations by certain nonprofit educational institutions as authorized by Code of Virginia § 58.1-609.4(4).
The basis for taxation to other taxpayers is addressed in a 1970 Opinion of the Attorney General. This opinion provides that hotel accommodations do not constitute tangible personal property, but rather taxable services. Accordingly, such purchases by all other taxpayers, including state governments, nonprofit organizations, government contractors and nonprofit or state supported universities, are taxable.
I trust that this information addresses your concerns. Please contact *** in my Office of Tax Policy at ****** if you need further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10871I
Rulings of the Tax Commissioner