Could corrected fencing invoices separating materials from installation labor reduce a Virginia sales tax assessment that originally taxed lump-sum charges?

Plain-English summary

Virginia accepted corrected fencing invoices that separated materials from installation labor and returned the audit for revision. Under the law applied to the audit, separately charged installation labor was exempt, while a lump-sum fencing charge was taxable on the full amount.

The acceptance was expressly for this audit only. The ruling warned that later lump-sum invoices during the same pre-change regime would remain fully taxable.

July 1, 2017 change

House Bill 1890 and Senate Bill 1308 changed Va. Code § 58.1-610 D effective July 1, 2017. A seller that both sold and installed fencing and other listed items became a consuming contractor. For qualifying post-change purchases, separately stating installation was no longer required in the same way because the installer paid tax as the user or consumer.

Common questions

Did the corrected invoices reduce the assessment? Yes. The field audit was directed to revise it.

Could future lump-sum invoices rely on this exception? Not for the pre-change period; acceptance was limited to this audit.

Why does the effective date matter? The sell-and-install classification changed July 1, 2017.

Citations and references

• Va. Code §§ 58.1-609.5 2 and 58.1-610 D
• House Bill 1890 and Senate Bill 1308, 2017 Acts of Assembly, Chapters 436 and 449

Subject

Purchase of fencing

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-84

Original ruling text

June 2, 2017

Re: § 58.1-1821 Request for Reconsideration: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you seek a reconsideration of the Department's determination of September 16, 2016 issued to * (the “Taxpayer”). I apologize for the delay in responding to your request.

FACTS

In the Department's prior determination letter, the Taxpayer's purchase of fencing was found to be subject to the retail sales and use tax based on the lump sum charges of the fencing vendor's invoices. The Taxpayer was advised that had the purchase invoices listed the materials separately from the labor/installation charges, the tax would properly be due only on the material charges. The Taxpayer was provided an opportunity to obtain corrected invoices from the vendor, but had not done so prior to the close of the audit.

The Taxpayer submitted a letter to the Department on September 14, 2016 providing the corrected invoices at issue. The Taxpayer has requested that the September 14, 2016 letter be considered the Taxpayer's timely request for reconsideration and is seeking an adjustment of the Department's assessment based on the corrected invoices.

DETERMINATION

Virginia Code § 58.1- 609.5 2 provides an exemption for installation labor when separately charged. In this instance, the Taxpayer's vendor charged the Taxpayer for fencing materials and labor on a lump-sum basis. The Taxpayer was held liable for the tax on these purchases. The Taxpayer submitted an application for correction under Va. Code § 58.1-1821 protesting the taxation of the lump sum charges. The Department's response noted that the Taxpayer's protest indicated that the installation labor would consist of 60% to 70% of the total cost of the lump sum charges, however, no evidence to support the Taxpayer's claim was received by the Department prior to the Tax Commissioner's determination.

The Taxpayer has submitted the required documentation. After reviewing this information, I will accept these documents for purposes of this audit only. Purchase invoices of tangible personal property that require installation labor must show separately stated materials and labor. If such invoices from the close of the audit period forward reflect lump sum charges, these charges will be subject to the tax on the total charge.

The Department's audit will be returned to the appropriate field audit staff for revision. A revised audit and assessment will be issued once the revision is completed.

Change to Virginia Code § 58.1- 610 D

Under the current statute, any person selling and installing 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 is deemed a retailer of them and not a using or consuming contractor with respect to them.

Legislation enacted during the 2017 Session of the Virginia General Assembly (House Bill 1890 and Senate Bill 1308, Acts of Assembly 2017, Chapters 436 and 449 respectively) would treat dealers who sell at retail but also sell and offer installation of 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 as consuming contractors for purposes of the retail sales and use tax. This legislation will take effect on July 1, 2017.

This would mean, in the Taxpayer's case, that purchases of fencing on and after July 1, 2017, from a person selling and installing fences would not require separately stated installation charges on invoices, as the vendor selling and installing fencing materials would be treated as a contractor installing real property.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1061.Q