Were carrier maintenance fees and separately stated on-site modular-home trim-out labor exempt from Virginia sales tax?

Subject

Modular-home trim-out labor was exempt; carrier maintenance was taxable

Plain-English summary

Virginia taxed carrier maintenance fees but exempted on-site factory trim-out charges. Carrier maintenance was not the direct act of delivery, so it did not qualify as transportation.

Trim-out work performed after contractors affixed the modular sections to a permanent foundation qualified as separately stated installation labor.

What this means for you

• Delivery exemption does not cover indirect carrier upkeep.
• Separately state and document qualifying installation labor.

Citations and references

• Va. Code § 58.1-609.5(2), (3).
• 23 VAC 10-210-6000(B).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-177

Original ruling text

September 18, 2008

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter requesting correction of the retail sales and use tax assessment issued to * (the "Taxpayer") as a result of an audit for the period March 2004 through February 2007.

FACTS

The Taxpayer is a modular building manufacturer selling modular homes at retail. The Taxpayer does not affix any homes to a permanent foundation. The contractors that purchase such homes perform the installations.

The Taxpayer contests the assessment of sales tax on carrier maintenance fees and contends that such fees should be considered part of the exempt delivery charges. The Taxpayer also contests the tax assessed on factory trim out (FTO) fees and contends that such fees are exempt installation labor charges. The FTO fees involve on-site labor to complete the trim work after the modular sections have been affixed to a permanent foundation by the purchaser of the modular building sections. Trim work involves the installation of baseboard, crown molding, stairs and fascia after the individual units are joined together by the contractor.

DETERMINATION

Carrier Maintenance Fees

Virginia Code § 58.1-609.5 3 provides an exemption for separately stated transportation charges. Title 23 of the Virginia Administrative Code 10-210-6000 B defines "transportation charges" as charges for delivery from the seller to the purchaser. This definition is consistent with the common meaning of the term "transportation," which is "[t]he act of transporting or the state of being transported." Webster's II New College Dictionary (p. 1172,1995). Because there is no statutory definition of transportation, the common meaning of the term applies. As such, the exemption is applicable only to the act of delivery and does not include maintenance charges that are indirectly related to the act of delivery. Accordingly, the tax on carrier maintenance fees is upheld.

FTO Fees

Virginia Code § 58.1-609.5 2 provides an exemption from the retail sales and use tax for "[a]n amount separately charged for labor or services rendered in installing . . . property sold." As the FTO charges are in connection with the installation of products regarding real property contracts, the charge constitutes a nontaxable installation charge. Accordingly, such charges will be removed from the audit.

CONCLUSION

The assessment will be revised in accordance with this determination. A revised bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges.

The Code of Virginia sections and regulation 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 determination, you may, contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1919660201.R