Must an out-of-state subcontractor installing floors and permanently attached flooring in Virginia pay tax on its job materials?

Subject

Out of state flooring contractor/subcontractor; Collection of tax.

Plain-English summary

Virginia treated the installer as the consumer of its flooring materials, not as a retailer reselling them. The out-of-state subcontractor installed actual floors and subflooring and also installed coverings that became permanently attached. It had no retail or wholesale location and bought materials job by job.

Under the real-estate-contractor rule, a contractor furnishing property while constructing, installing, or repairing real estate is the user and consumer of that property. The retailer exception for certain floor coverings covers items such as rugs, mats, padding, and nonpermanently attached carpet; it did not cover floors themselves or coverings glued, cemented, or otherwise permanently attached.

The contractor therefore had to pay Virginia sales tax to its supplier on all materials used in the flooring contracts. If the supplier did not charge the tax, the contractor had to accrue and remit Virginia consumer use tax directly.

What this means for you

• Distinguish actual floors and permanently attached coverings from removable floor coverings.
• A subcontractor can be the taxable consumer even without contact with the property owner.
• Pay sales tax when buying job materials and review invoices for untaxed purchases.
• Accrue consumer use tax when the supplier fails to collect Virginia sales tax.

Common questions

Q: Did being a subcontractor change the result?

A: No. The ruling treated the installer as the consumer of materials used in its real-property work.

Q: Which floor coverings fit the retailer exception?

A: The regulation listed removable items such as rugs, mats, padding, and certain wall-to-wall carpet not permanently attached.

Q: What if the supplier charged no Virginia tax?

A: The contractor had to accrue and remit consumer use tax.

Citations and references

• Va. Code § 58.1-610(A), (D).
• 23 VAC 10-210-410(G).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-107

Original ruling text

May 25, 2016

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling on behalf of your client (the “Contractor”) regarding the application of the retail sales and use tax to contractors doing construction and renovation work in Virginia.

FACTS

The Contractor is an out-of-state business that does construction work in Virginia. The Contractor generally acts as a subcontractor installing floors for other subcontractors or for the general contractor. The Contractor is paid by the contractor who hired them to do the floor installation and has no contact or interaction with the property owner. Based on a telephone conversation with a member of my staff, the Contractor installs actual floors and subflooring, i.e. , wood, plywood, cement, etc., and not floor coverings such as rugs, mats, padding, and wall-to-wall carpeting. The Taxpayer also does not maintain a retail or wholesale place of business and purchases materials on a job-by-job basis. The Contractor requests guidance as to its Virginia retail sales and use tax responsibility on Virginia jobs.

RULING

Generally, real estate contractors must comply with Va. Code § 58.1-610 A, which sets out the following rule:

Any person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption.

However, Va. Code § 58.1-610 D provides an exception to the above general contractor rule and states:

Any person selling fences, venetian blinds, window shades, awnings, storm windows and doors, locks and locking devices, floor coverings (as distinguished from the floors themselves), cabinets, countertops, kitchen equipment, window air conditioning units or other like or comparable items, shall be deemed to be a retailer of such items and not a using or consuming contractor with respect to them, whether he sells to and installs such items for contractors or other customers and whether or not such retailer fabricates such items. (Emphasis added).

For purposes of the above exception to the general contractor rule, a retailer is defined in Title 23 Virginia Administrative Code 10-210-410 G as “any person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of the aforementioned items, and who performs installation as part of or incidental to the sale of the aforementioned items.” Subsection G goes on to provide the definition of floor coverings as follows:

“Floor coverings” (as distinguished from the floors themselves) include rugs, mats, padding, wall-to-wall carpets when installed by the tack strip or stretch-in methods, and other floor coverings which are not glued, cemented, or otherwise permanently attached to the floor below. Persons selling and installing floor coverings which become permanently attached to floors are deemed to be using or consuming contractors with respect to such items. Such floor coverings include carpet, wood block, cork, tile, linoleum, and vinyl floor coverings when glued, cemented or otherwise permanently attached to floors or plywood and concrete subflooring.

Based on the information provided, the Contractor is installing flooring and floor coverings that become permanently attached to existing floors or subflooring. Pursuant to Va. Code § 58.1-610 A, the Contractor is acting as a using and consuming contractor with respect to real property and would be the user and consumer of all flooring installed. This being the case, when purchasing flooring materials for use in its contract, the Contractor would pay the sales tax to its supplier on all tangible personal property used by it in fulfilling flooring contracts. Should the supplier fail to charge sales tax on any purchase of materials, the Contractor would be required to accrue and remit the Virginia consumer use tax directly to the Commonwealth of Virginia.

The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you should have any additional questions about this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6165110018.Q