Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 210 - RETAIL SALES AND USE TAX › Section 23VAC10-210-410 - Contractors respecting real estate

Current through Register Vol. 40, No. 24, July 15, 2024
A. Basic rules.
				A contractor is defined as any person who contracts to perform construction,
				reconstruction, installation, repair, or any other service with respect to real
				estate or fixtures thereon, including highways, and in connection therewith to
				furnish tangible personal property, whether such person be a prime contractor
				or subcontractor. Unless otherwise noted, the law treats every contractor as
				the user or consumer of all tangible personal property furnished to the
				contractor or by the contractor in connection with real property construction,
				reconstruction, installation, repair, and similar contracts.
Tangible personal property incorporated in real property
				  construction that loses its identity as tangible personal property and becomes
				  real property is deemed to be tangible personal property used or consumed by
				  the contractor. Any sale, distribution, or lease to or storage for such a
				  contractor is deemed a sale, distribution, or lease to or storage for the
				  ultimate consumer (the contractor), and not for resale by the contractor. The
				  dealer (supplier) making the sale, distribution, or lease to or storage for
				  such a contractor must collect the tax from the contractor. No sale to a
				  contractor is exempt on the ground that the other party to the contract is a
				  governmental agency, a public service corporation, a nonprofit school, or
				  nonprofit hospital, or on the ground that the contract is a cost-plus
				  contract.
A contractor must remit the use tax on any tangible personal
				  property purchased exclusive of the tax and furnished to the contractor except
				  when such property is purchased and furnished to a contractor by a governmental
				  unit or agency. Property that is exempt from the tax when purchased by a
				  manufacturer, processor, miner, public service corporation, commercial radio,
				  television or cable television operation, farmer, or shipbuilding and repair
				  business may also be furnished to a contractor without such contractor becoming
				  subject to use tax. Contractors may also purchase machinery and tools to be
				  used directly in industrial manufacturing or processing (see
				  23VAC10-210-920) exempt from the
				  tax.
A contractor, whether the contractor be a prime contractor or
				  subcontractor, does not pass the sales or use tax on to anyone else as a tax.
				  The contractor will take the amount of the tax into consideration in submitting
				  bids.
If a supplier of a contractor doing work in Virginia does not
				  collect the Virginia tax from the contractor, the contractor will be liable for
				  the use tax on the contractor's purchases from the supplier.
B. Person who is a using or consuming
				contractor and also a seller. A person who is a using or consuming contractor,
				as explained in subsection A of this section, may also be engaged in the
				business of selling tangible personal property to customers, including
				contractors, for use or consumption by such customers. If so, the person is a
				dealer with respect to such sales and is required to obtain a Certificate of
				Registration.
After obtaining a Certificate of Registration as a dealer
				  because the contractor is engaged in the business of selling tangible personal
				  property to customers for use or consumption by the customers, a contractor may
				  purchase the tangible personal property under a resale exemption certificate.
				  The contractor may not purchase under a resale exemption certificate any
				  tangible personal property which the contractor knows at the time of purchase
				  will be furnished by the contractor in connection with any specific contract.
				  If such a person, as a using or consuming contractor, removes from the
				  contractor's sales inventory for use in the performance of any contract any
				  tangible personal property purchased under a resale certificate, the contractor
				  must include the cost to such contractor of such tangible personal property on
				  the contractor's dealer's return and pay the tax.
C. Fabricator (manufacturer, processor, or
				miner) who fabricates tangible personal property and sells it to customers. A
				person who fabricates tangible personal property and sells it to customers,
				including contractors, for use or consumption by them, must add the sales tax
				to the sales price and collect it from the customer for payment to the state.
				Raw materials, component parts, and other tangible personal property to be
				fabricated for sale may be purchased under a resale certificate of
				exemption.
D. Fabricator
				(manufacturer, processor, or miner) who fabricates tangible personal property
				exclusively for use and consumption in real property construction contracts. A
				fabricator who contracts to perform services with respect to real estate
				construction, and in connection therewith to furnish tangible personal property
				for incorporation in real estate construction thereby causing it to lose its
				identity as tangible personal property by becoming real property, is classified
				as a using or consuming contractor and must pay the tax on the cost price of
				the raw materials that make up such fabricated property. The tax must be paid
				at the time of purchase to all suppliers who are authorized to collect the tax.
				In instances where the supplier is not authorized to collect the tax or fails
				to collect the tax, the tax must be remitted directly to the Department of
				Taxation on Form ST-7, Consumer's Use Tax Return.
E. Fabricator (manufacturer, processor, or
				miner) who operates in a dual capacity of fabricating tangible personal
				property for sale or resale and fabricating for its own use and consumption in
				the performance of real property construction contracts. A manufacturer,
				processor, or miner who operates in a dual capacity of fabricating tangible
				personal property for sale or resale and fabricating for the manufacturer's,
				processor's, or miner's own use and consumption in the performance of real
				property construction contracts shall follow a primary purpose rule based on
				gross receipts in determining sales and use tax application.
Any person who is principally fabricating tangible personal
				  property for sale or resale shall apply the tax according to subsection C of
				  this section. Such fabricators should collect and remit the tax based upon the
				  total amount for which tangible personal property and services are sold, except
				  that charges for labor and services rendered in installing, applying,
				  remodeling, or repairing property sold may be excluded from the tax when
				  separately stated or charged. In addition, any person who withdraws tangible
				  personal property from inventory for use and consumption in the performance of
				  real property construction contracts is liable for the tax based on the
				  fabricated cost price of the tangible personal property withdrawn. Fabricated
				  cost price is computable by totaling the cost of materials, labor, and overhead
				  charged to work in process. Freight inward at the plant is treated as an
				  element of the cost of the materials.
Any person who is principally fabricating tangible personal
				  property for that person's own use and consumption in real property
				  construction contracts shall apply the tax according to subsection D in this
				  section. In addition, persons who sell tangible personal property to consumers
				  must register, collect, and pay the tax on the retail selling price of the
				  tangible personal property. Such person is entitled to purchase exempt from the
				  tax only that tangible personal property that can be identified at the time of
				  purchase as purchases for resale. If the person is unable to identify at the
				  time of purchase the tangible personal property that will be resold, such
				  person is required to pay the tax to the person's supplier. If at a later date,
				  the person sells the tangible personal property at retail, the tax is collected
				  upon retail selling price. Such persons are not entitled to credit for the tax
				  paid to suppliers since the transactions are separate and distinct taxable
				  transactions.
A person who fabricates tangible personal property, both for
				  sale or resale and for use in real property construction contracts, may apply
				  to the Tax Commission to pay any tax directly to the state and avoid the
				  collection of tax by suppliers, if such person's purchases are made under
				  circumstances that normally make it impossible at the time of sale to determine
				  the manner in which such property will be used. (See
				  23VAC10-210-510 on direct payment
				  permits.)
F. Fabricator's
				production exemptions, when allowable. Fabricators of tangible personal
				property may take the status of industrial manufacturers, processors, or miners
				under 23VAC10-210-920 or
				23VAC10-210-960, and when
				fabricating tangible personal property for sale or resale, such fabricators may
				enjoy the production exemptions set out in
				23VAC10-210-920 or the mining
				exemptions set out in
				23VAC10-210-960. The production
				and mining exemptions are not available to a fabricator of tangible personal
				property who fabricates for the fabricator's own use or consumption (as a
				contractor or otherwise) and not for sale or resale. However, a fabricator
				whose principal or primary business is the fabrication of tangible personal
				property for sale or resale, and who, as a lesser or minor part of this
				business, fabricates for such fabricator's own use and consumption, will not be
				deprived of the production exemptions set out in
				23VAC10-210-920, or the mining
				exemptions set out in
				23VAC10-210-960.
G. Reserved.
H. Retailer selling and installing tangible
				personal property. Any person who sells tangible personal property at retail
				and installs such property as part of or incidental to the sale is a retailer
				and is required to add the sales tax to the sales price. The tax does not apply
				to installation charges when separately stated on a sales invoice. If the
				installation charge is not separately stated, the tax must be computed on the
				total charge.
Retailers are deemed to be the users or consumers of all
				  supplies used in installing tangible personal property. Therefore, retailers
				  are subject to the tax on all such supplies purchased.
I. Construction materials temporarily stored
				in Virginia. Construction contractors may purchase exempt from tax construction
				materials for temporary storage in Virginia to be used in exempt construction
				projects in other states or foreign countries. Contractors entitled to this
				exemption may obtain certificates of exemption upon written request to the
				Department of Taxation. The request should include information to show that the
				construction materials could be purchased by the contractor free from sales or
				use tax in the other state or foreign country.
This exemption is restricted to construction materials
				  incorporated into exempt real property construction. The tax applies to
				  equipment, tools, supplies, etc., used in performance of the construction
				  contract. The tax applies to all other construction materials, temporarily
				  stored in Virginia, that will be incorporated into real estate construction
				  projects outside Virginia.
J. Government contracts. Generally, purchases
				of tangible personal property by contractors in connection with real property
				construction contracts with the governments of Virginia or the United States or
				political subdivisions thereof, are sales to such contractors for such
				contractors' own use or consumption and contractors are subject to the tax on
				such transactions. This applies regardless of whether title to such property
				passes directly to the governmental entity upon purchase by the contractor or
				if the contractor is reimbursed directly by the government entity for the cost
				of such property.
Only in instances where the credit of a governmental entity
				  is bound directly and the contractor has been officially designated as the
				  purchasing agent for such governmental entity will such purchases be deemed
				  exempt from the tax.
Contractors are not subject to the use tax when provided with
				  tangible personal property purchased by a governmental entity for use in real
				  property construction contracts. For further information relating to the sales
				  and use tax exemption for purchases by governments generally, see
				  23VAC10-210-690 on
				  Governments.
For pollution control equipment and facilities, see
				  23VAC10-210-2070; use tax
				  generally, see
				  23VAC10-210-6030; highway
				  contractors specifically, see
				  23VAC10-210-410.
Statutory Authority: § 58.1-203 of the Code of
					 Virginia.