West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-15 - Consumer Sales And Service Tax And Use Tax › Section 110-15-112 - Materials Produced or Manufactured by Contractors

Current through Register Vol. XLI, No. 28, July 12, 2024
112.1. The consumers sales and use tax laws
				provide that where a person produces a natural resource product or manufactures
				tangible personal property which such person then uses or consumes in the
				performance of contracting activity in this State, such person must pay
				consumers sales or use tax on the gross value of the natural resource product
				or manufactured product so used or consumed by such person in such contracting
				activity. The three exceptions to this rule are as follows:
112.1.1. Prior to October 1, 1990, where the
				natural resource product or manufactured product is actually installed,
				affixed, or incorporated into a building, structure or real property in
				fulfillment of a contract with the government of the United States, the
				government of this State or a political subdivision thereof, or with a public
				corporation created by the West Virginia Legislature or by a governmental
				entity pursuant to an Act of the Legislature, the product is deemed to have
				been sold to the governmental entity for which the contracting is being done
				even though it is directly used or consumed by the contractor in contracting
				done for the governmental entity. As of October 1, 1990, the exemption for
				materials purchased by contractors for use in governmental contracts was
				generally repealed and the use of material purchase certificates became very
				limited. See Section 109 of these regulations for additional information on the
				transition rules relating to the taxation of materials for use in governmental
				contracts.
112.1.2. Where the
				manufacturer-contractor (or natural resource producer-contractor) enters into
				two separate and distinct written contracts in arm's length transactions with
				the contractor (customer), one for the furnishing of materials and the other
				for the furnishing of contracting work with respect to new construction or to a
				capital improvement to a building or structure or real property.
112.1.2.1. The contract to furnish materials
				and the contract to furnish contracting work shall not be treated as separate
				and distinct contracts for purposes of the consumers sales and use taxes unless
				it is established by the contractor through clear and convincing evidence that:
112.1.2.1.a. Each contract was an
				arm's-length transaction;
112.1.2.1.b. The performance of one contract
				was not dependent upon the award of the other contract;
112.1.2.1.c. The award of one contract was
				not dependent upon the award of the other contract; and
112.1.2.1.d. Title to the materials passed to
				the contractor (customer) prior to the time the materials were incorporated
				into the capital improvement to a building or structure or real
				property.
112.1.2.2. The
				burden of proving that Section 112.1.2 of these regulations applies shall be
				upon the contractor.
112.1.2.3.
				Example. XYZ Co., a public utility, is planning to construct a new electric
				power generating facility in West Virginia. The XYZ Co. is subject to the West
				Virginia Business and Occupation Tax on its entire business conducted within
				the State and is exempt from the West Virginia Consumer Sales and Service Tax
				on its purchases under Sections 9.4.1 and 9.4.4 of these rules. In constructing
				the plant, XYZ Co. will purchase major items of equipment, including the
				boiler; turbo generator, pumps, motors, piping, etc. by entering into contracts
				for the acquisition of materials and equipment with one or more equipment
				vendors. XYZ Co. may also enter into construction contracts for all or part of
				the facility. Under these facts, the consumer sales and use taxes are imposed
				on the acquisition of materials used in constructing the boiler as follows:
a. If XYZ Co. purchases the materials from a
				materials vendor and erects the boiler itself, it will owe no consumers sales
				or use tax on the purchase of the materials.
b. If XYZ Co. purchases the materials from a
				materials vendor and contracts with a contractor other than the materials
				vendor to construct the boiler, XYZ Co. will owe no consumers sales or use tax
				on the purchase of the materials. The contractor will also owe no consumers
				sales or use tax on the construction contract tax because contracting services
				are exempt under Section 9.2.17 of these rules.
c. If XYZ Co. requests separate bids for the
				materials and for construction of the boiler and the same
				contractor-manufacturer is awarded both the materials and erection contracts,
				the Tax Commissioner will recognize the separate contracts and XYZ Co. will not
				owe the consumers sales or use tax on the purchase of the materials. The charge
				for erection will also be exempt because contracting services are exempt under
				Section 9.2.17 of these rules.
d.
				If XYZ Co. enters into one contract covering both the procurement of materials
				and construction of the boiler with a contractor-manufacturer of boilers, the
				contractor-manufacturer will owe the consumers sales and use tax on the fair
				market value of the boiler which it manufactured as well as on the purchase
				price any tangible personal property or taxable services which it used directly
				or indirectly in rendering the tax exempt contracting service.
112.1.3. Where the
				natural resource product or manufactured product is physically produced or
				manufactured on the job site where the contracting activity is taking place,
				and such product is directly used or consumed in contracting activity at that
				job site, the raw materials used or consumed in such contracting activity are
				taxable and the gross value of the product or manufactured product is not
				separately taxed.
Example 1: ABC Asphalt Company enters into a subcontract with
				  the general contractor of a large shopping mall for ABC Company to pave the
				  mall's parking lot. ABC Asphalt Company moves its portable asphalt plant to the
				  job site. The asphalt manufactured by the plant is used solely in fulfilling
				  the shopping mall contract. The asphalt mix which ABC Asphalt Company purchases
				  is taxable because it is tangible personal property which ABC Asphalt Company
				  uses or consumes in its contracting activity. The exemption for tangible
				  personal property directly used or consumed in manufacturing activity does not
				  apply to asphalt mix (and other similar property) because the asphalt mix is
				  directly used or consumed in contracting activity and the product is
				  manufactured on the job site.
Example 2: Same facts as example one, except that ABC Asphalt
				  Company utilizes the portable asphalt plant to also manufacture asphalt which
				  it sells other contractors. Under these facts, the asphalt mix is a raw
				  material used in manufacturing tangible personal property. ABC Asphalt Company
				  must collect consumers sales and service tax from the contractors who purchase
				  part of the manufactured asphalt. ABC Company must also pay consumers sales and
				  service tax on the gross value of the manufactured asphalt which it consumes in
				  its contracting activity.
Example 3: ACE Heating and Contracting (ACE) Company has a
				  contract to install a heating and air conditioning system in a ten story office
				  building that is being constructed. ACE has a metal shop at which it fabricates
				  standard sizes of duct work which it uses in its contracting business. It also
				  sells duct work to other contractors. The gross value of duct work which ACE
				  fabricates at the shop and uses in its contracting activity is subject to
				  consumers sales and service tax. ACE also fabricates duct work at the job site.
				  ACE will not pay consumers sales and service tax on the gross value of the duct
				  work which it fabricates on the job site, but will pay consumers sales and
				  service tax or use tax on the sheet metal which it uses at the job site to
				  fabricate the duct work. ACE will not pay consumers sales and service tax or
				  use tax on the sheet metal which is uses at its shop to fabricate duct work,
				  because this sheet metal is a raw material used to fabricate (manufacture duct
				  work).
Example 4: XYZ Construction Company (XYZ) produces limestone
				  which it manufactures into various limestone products. It uses a portion of
				  these limestone products in its contracting activity. XYZ must pay consumers
				  sales and service tax on the gross value of the limestone products which it
				  manufactures and uses in its contracting activity.