Tax Type
Retail Sales and Use Tax
Description
Government transactions; Contractor's purchases on behalf of government.
Topic
Taxability of Persons and Transactions
Date Issued
10-16-1997
October 16, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear**********
This is in reply to your letter of May 22, 1997, in which you request a ruling on the application of the retail sales and use tax to a specific contract between your client (the "Taxpayer') and a state agency of the Commonwealth of Virginia.
FACTS
The Taxpayer has been engaged to acquire and furnish equipment and materials which are elements or parts of a computerized Traffic Management System. The system will provide computerized highway surveillance and control for highways in Northern Virginia. The Taxpayer will also provide documentation and training services on the new system to the state agency's employees.
The Taxpayer is responsible for furnishing and installing equipment and related materials in various locations. You request a ruling regarding the sales and use tax treatment of equipment and related materials purchased as part of the contract, which will become the property of the Virginia state agency upon completion of the Traffic Management System.
RULING
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. If a contract is for the sale of tangible personal property, the contractor may purchase articles under resale certificates of exemption. The subsequent sale of the property to a Virginia state agency is exempt from the tax under Code of Virginia § 58.1-609.1(4). If the contract is for the provision of services and in connection with those services tangible personal property is provided, the contractor is deemed to be the taxable user or consumer of the tangible personal property and must pay the tax on the purchases.
Based on the facts provided in your letter, it appears that the contract at issue is for the sale of tangible personal property. While the Taxpayer is contractually required to perform various services, such as installation, integration, and training services, the purpose of the contract is for the provision of equipment and related materials in conjunction with the delivery of a complete functional and operational Traffic Management System. The Taxpayer will not operate or manage the system, and the services described are provided as part of the sale of the equipment and component systems. Accordingly, tangible personal property purchased by the Taxpayer, the title to which passes to the Commonwealth, may be purchased exempt from Virginia sales tax using resale exemption certificates. The subsequent sale of the system is also exempt under Code of Virginia § 58.1-609.1(4).
Please note that the Taxpayer is the taxable user and consumer of all supplies and equipment used in connection with the contract for which title does not pass to the Commonwealth (e.g., supplies and tools used in installing the system).
This ruling is limited to the facts as presented in your letter. If the facts or scope of work of the contract should change or differ from that as outlined in your letter, the application of the tax may change.
If you have any questions regarding this ruling, you may contact***** of the department's Office of Tax Policy at********* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13038F
Rulings of the Tax Commissioner