Were installed audiovisual systems retail sales of tangible property, and how did Virginia tax installation labor, supplies, and wiring?

Subject

Audiovisual systems were retail property, with separate treatment for labor and supplies

Plain-English summary

Virginia treated the described audiovisual systems as retail sales of tangible personal property. The systems included videoconferencing equipment, projectors, screens, speakers, whiteboards, controls, and mostly removable racks or wall-mounted components.

The seller had to collect sales tax on the total charge for the system. Separately stated installation charges were not taxable, and the seller could buy the resale equipment with Form ST-10.

The seller was the consumer of tools, screws, brackets, and similar installation supplies. Wiring installed within walls, ceilings, or floors was generally treated as incorporated into the realty and taxable to the installer at cost. Wiring not incorporated into realty but transferred to the customer entered the taxable retail sale.

Government, nonprofit, school, and contractor transactions depended on valid exemption certificates and the contract facts. Labor-only removal or relocation of customer-owned systems was not taxable.

What this means for you

• Removable audiovisual equipment remained tangible personal property under these facts.
• Separately stating installation labor kept that charge outside the tax base.
• Consumable installation supplies were taxable to the installer.
• Wiring treatment turned on whether it became part of the building.
• Sales to real-property contractors were taxable unless the contractor bought for an independent resale.

Common questions

Could the seller buy the audiovisual equipment for resale?

Yes. It could furnish Form ST-10 for property bought solely for resale.

Was wiring always taxed the same way?

No. Building-incorporated wiring was consumed by the installer; wiring transferred as personal property was taxed to the customer.

Did the special contractor-retailer test apply?

No. Virginia said audiovisual equipment was not among or comparable to the items listed for that test.

Citations and references

• Va. Code §§ 58.1-609.1(4), 58.1-609.5(1), 58.1-609.11(B), and 58.1-610.
• 23 VAC 10-210-230(B), 10-210-410(G), 10-210-410(I), and 10-210-490.
• Tax Bulletin 05-4, also cited as P.D. 05-57.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-117

Original ruling text

July 31, 2009

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request a ruling on the application of the retail sales and use tax with respect to your client, * (the "Taxpayer").

FACTS

The Taxpayer designs, builds and installs audio-visual equipment systems. These systems consist of videoconferencing equipment, projectors, screens, speakers, interactive white boards, and remote control devices. Most of the equipment is typically contained on shelving (a rack) or in a closet in a room. Screens and speakers are generally connected to a wall or a ceiling via brackets. All equipment is installed to be easily removed or relocated. The equipment is merely plugged into the building's existing electrical outlets. Although some of the wiring connecting the components is installed behind the wall or ceiling (approximately 1% of total projects), the Taxpayer does no cabling or electrical work that relates to the operation of the building. Rather, such cabling or electrical work is provided by the building's owner or tenant or another contractor. You indicate that none of the components of the system become integrated into the real estate and that the wiring may be easily removed.

Installations are made in corporate office buildings, government office buildings, museums, universities and schools. The customer may be either a contractor involved in the construction or renovation of the building or an owner or tenant of the facility that engages the Taxpayer directly for the work.

Although the Taxpayer has historically treated itself as a retailer, some customers are now challenging the application of the sales tax to sales made by the Taxpayer. Accordingly, the Taxpayer wishes to confirm the application of the sales tax to its transactions.

RULING

Based on the facts presented, I find that the audio visual systems sold by the Taxpayer with or without installation to the customer constitute retail sales of tangible personal property. In such instances, the Taxpayer must charge and collect the sales tax based on the total charge for the sale of the audio visual systems. Separately stated installation charges are not subject to the tax. The Taxpayer should complete and furnish a resale exemption certificate, Form ST-10, to vendors when purchasing tangible personal property for resale purposes only.

The Taxpayer is also required to pay the tax on all equipment and supplies used in installation, including, but not limited to, equipment, tools and other similar items. The Department has a long-standing policy of treating retailers as the users and consumers of all installation supplies. See Title 23 Virginia Administrative Code (VAC) 10-210-410 I. Thus, the Taxpayer is liable for the tax on the cost price of screws, nails, brackets and other consumables used to install audiovisual equipment.

The Department also has a long-standing policy of treating wiring that remains a part of the building as an installation supply. See Title VAC 10-210-230 B and numerous public documents (P.D.), such as 90-210 (11/28/90), 92-29 (4/20/92), 95-106 (5/8/95), 95-295 (11/16/95) and 03-87 (11/12/03). Accordingly, the application of the tax to wiring will depend on whether or not it is incorporated into the realty. For wiring incorporated into the realty, the Taxpayer is liable for the tax on the cost price of such wiring. Generally, wiring installed within the walls, ceilings and floors of a building is considered to be incorporated into the realty. The fact that the wiring does not serve a building function or is installed in a manner to allow for easy removal when the audio visual equipment is removed is not conclusive evidence of intent to install temporary wiring. For wiring that is not incorporated into the realty but transferred to a customer, the Taxpayer must collect the retail sales tax on the charge for the wiring. Because the wiring installed by the Taxpayer may or may not become incorporated into the realty, the Taxpayer may buy wiring exempt from the tax pursuant to Form ST-10. When wiring is incorporated into a (building as noted above, the Taxpayer must report the use tax owed on the wiring withdrawn from a resale inventory. See Title 23 VAC 10-210-490.

Sales to the government ( i.e. , federal, Virginia, or political subdivisions of Virginia), nonprofit schools and colleges and other nonprofit organizations are allowed a specific exemption from the tax on their purchases provided they furnish a valid exemption certificate. For example, the Form ST-12 exemption certificate must be completed, signed and dated by the federal government. Also, the sale must be paid for directly with federal funds. The government exemption set out in Va. Code § 58.1-609.1 4 has no application to a tax liability incurred directly by a real property contractor or service provider. For schools, colleges, and other nonprofit organizations, the Department issues specific time-restricted exemption certificates to those entities that qualify for an exemption from the retail sales and use tax. For more information on exemptions applicable to nonprofit organizations, see Va. Code § 58.1-609.11 B and Tax Bulletin 05-4 (4/13/05), which is also cited as P.D. 05-57 (4/13/05).

Sales of audio visual equipment to real property construction contractors are taxable because such contractors are deemed the consumers of all tangible personal property pursuant to real property construction contracts. See Va. Code § 58.1-610. The only exception would be for those contractors furnishing a valid resale exemption certificate to resell the equipment independent of any real property construction contract. See P.D. 87­219 (10/2/87).

No tax is applicable to labor only contracts, such as the removal or relocation of a customer's audio visual equipment. See Va. Code § 58.1-609.5 1.

Non-Application of Retailer Test

The foregoing is decided without the application of the retailer test set out in Title 23 VAC 10-210-410 G. Such retailer test is intended only for application to persons selling and installing cabinets, kitchen equipment, window air conditioning equipment, and the other items specifically listed in Va. Code § 58.1-610 D. Audio visual equipment is not one of those items specifically listed in the statute. Furthermore, audio visual equipment is not like or comparable to cabinets, kitchen equipment, window air conditioning or any other items specifically listed in the statute.

This response is based on the facts provided as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this ruling, you may contact * in the Department's Office of Tax Policy, .Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2486920007.R