Was an installer of athletic floor tiles and other permanently installed property a retailer or a using and consuming contractor in Virginia?

Subject

Tile and equipment installer was a using and consuming contractor

Plain-English summary

Virginia treated a company installing athletic floor tiles, fencing, basketball goals, lighting, and related materials as a using and consuming contractor. The company sold no products without installation and maintained neither a retail or wholesale place of business nor inventory of the installed products or materials.

The Department could not determine from the submitted description whether the anchored, interlocking floor tiles were permanently attached. But if the tiles were not permanent floor construction, the special floor-covering rule still required the installer to satisfy all three retailer criteria. It performed installation but lacked the required business location and inventory, so it was not treated as a retailer.

The company therefore had to pay Virginia sales tax to registered vendors or remit consumer use tax on the cost price when a vendor did not collect tax. That treatment covered the tiles, fencing, basketball goals, lighting, and installation materials. The company was directed to register for consumer use tax returns on Form ST-7. If it later began retail sales without installation, it should re-register on Form ST-9.

What this means for you

• An installer does not become a retailer of floor coverings merely because the materials may be removable.
• Under the cited special rule, retailer treatment required a retail or wholesale place of business, inventory, and installation activity.
• A using and consuming contractor pays tax on its material cost rather than separately passing sales tax to the customer as a tax.
• Vendor noncollection shifts the obligation to the contractor's consumer use tax return.
• Selling products without installation can change the required registration and reporting form.

Common questions

Did Virginia decide that the floor tiles were permanently attached?

No. The installation description was insufficient, and the website information suggested free-floating interlocking modules. The contractor classification nevertheless followed because the company did not meet all retailer criteria.

What tax applied to the installed materials?

The company had to pay sales tax to its vendor or remit consumer use tax on cost when the vendor did not collect it.

Could the contractor add sales tax to the customer's bill as a tax?

The ruling said no. As the user or consumer, it should account for the tax in its bids rather than pass it through as a separately imposed tax.

Which return did Virginia require?

Form ST-7 for consumer use tax. If the company later made retail sales without installation, it should re-register to use Form ST-9.

Citations and references

• Va. Code §§ 58.1-610(D) and 58.1-609.5(3).
• 23 VAC 10-210-410(A) and (G).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-141

Original ruling text

July 23, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter of March 23, 2010 requesting a ruling as to whether * (the Taxpayer) is required to file use tax or sales tax returns.

FACTS

The Taxpayer requests a ruling with respect to the floor coverings (tiles) that it installs in gymnasiums, residential garages, basements, etc., for sports activities. While no adhesives are used, the Taxpayer uses anchors to attach tiles to concrete to prevent the migration of the tiles. While the floor tiles could be removed and installed in another building, the Taxpayer indicates that it would be an exceptional case.

The Taxpayer also installs basketball goals, game accessories, lighting and fencing in concrete. None of Taxpayer's products are currently sold at retail without installation. The Taxpayer maintains no inventory of tiles or other products, or the installation supplies thereof.

RULING

Floor Coverings

Virginia Code § 58.1-610 generally treats real property construction contractors as the users or consumers of all tangible personal property incorporated into realty. An exception to such general treatment is set out in subsection D of this statute, as follows:

Tangible personal property incorporated in real property construction which loses its identity as tangible personal property shall be deemed to be tangible personal property used or consumed within the meaning of this section. Any person selling fences, . . . floor coverings (as distinguished from the floors themselves) . . . 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.]

Title 23 of Virginia Administrative Code (VAC) 10-210-410 G interprets the above cited statutory provision. This regulation defines the term "retailer," for purposes of this special regulation only, to mean "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." A person that sells floor coverings as defined in the regulation and satisfies the three criteria of the retailer definition is not classified as a using and consuming contractor with respect to the installations of such products. Rather, such person must treat the sale and installation of such products as taxable retail sales, except for separately stated installation charges that are exempt from the tax pursuant to Va. Code § 58.1-609.5 3.

The above regulation specifically defines "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. [Emphasis added.]

Therefore, if the floor coverings are permanently attached to floors as to become the permanent floor itself, then the retailer definition set out above has no application. Thus, a person permanently installing floor coverings is a using and consuming contractor of such coverings. On the other hand, when floor coverings are not permanently affixed to the floor below, the above regulation requires the application of the retailer definition test. In such instances, a person is a retailer of such installed floor coverings if it satisfies the three criteria of the retailer definition. If the criteria of the retailer definition are not satisfied, the person is a using and consuming contractor of such installed floor coverings.

Based on all of the facts provided, it is not possible to determine whether the Taxpayer permanently affixes floor coverings to the realty. The Taxpayer only suggests that floor coverings are permanently installed with anchors but fails to describe the installation process as requested. Based on a review of the Taxpayer's website, the product information indicates that tiles generally consist of interlocking free-floating modules that do not require any adhesives or anchors. As such, it is not clear why and how the anchors are used in the installation of tiles. For this reason, I cannot conclude that the Taxpayer installs permanent flooring.

As it appears that the Taxpayer does not glue, cement or otherwise permanently attach floor tiles to the floors or plywood and concrete subflooring, an examination may be made as to whether the Taxpayer satisfies all of the criteria of the retailer definition set out in Title 23 VAC 10-210-410 G. While the Taxpayer does perform tile installations, it does not maintain a retail or wholesale place of business or an inventory of floor coverings as contemplated by the retailer definition. Because the Taxpayer does not satisfy all of the criteria to be treated as a retailer of tiles, it must be, treated as a using and consuming contractor with respect to the installations of such tile products.

As such, the Taxpayer should pay the sales tax to its vendors for the tile materials, if the vendor is registered to collect the Virginia sales tax. If the vendor is not registered to collect the Virginia sales tax or fails to collect such tax, the Taxpayer is responsible for remitting the consumer use tax based on the cost price of the tile materials.

Fencing

The fencing installed by the Taxpayer is also subject to the special regulation set out in Title 23 VAC 10-210-410 G. Based on the facts provided, it appears that the Taxpayer does not qualify for treatment as a retailer under such regulation. Rather, the Taxpayer is the user or consumer of all fencing materials that it installs into the realty and should follow the same tax application methods as explained above for its tile transactions.

Other Installations

As for basketball goals, lights and other tangible personal property not subject to the special rules of Title 23 VAC 10-210-410 G, and that are affixed to the realty by concrete or other permanent installation materials, the Taxpayer is considered a using and consuming contractor. As such, the Taxpayer must pay the tax on the cost of the basketball goals, lighting and installation materials. The rules set out in Title 23 VAC 10-210-410 A are applicable to the sale and installation of such property. As a contractor in these instances, the Taxpayer does not pass the sales or use tax on to anyone else as a tax. Instead, the Taxpayer must take the amount of the tax into consideration in submitting bids on jobs. If the vendor charges the sales tax on basketball goals, etc. (to be affixed to realty by the Taxpayer), the Taxpayer should pay the vendor the tax. If the vendor does not charge the sales tax, the Taxpayer is responsible for reporting and paying the use tax on the basketball goals that it permanently installs.

Installation Materials

The Taxpayer is also liable for the tax on the cost price of all of its installation materials, regardless of whether used for installing tiles, fencing or the other products noted above.

Registration

Based on all of the foregoing, the Taxpayer is currently a using and consuming contractor of floor tiles, fencing, basketball goals, lighting and installation materials. As a user or consumer of such materials, the Taxpayer should be registered to file consumer use tax returns (using Form ST-7) and pay the consumer use tax in case a vendor does not charge the Virginia sales and use tax.

If, at some time in the future, the Taxpayer sells any products at retail without installation, it should then re-register as a retailer/consumer to file sales and use tax returns using Form ST-9. This return allows a dealer to report both its sales tax collections and its consumer use (personal use) tax liabilities.

CONCLUSION

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

The Code of Virginia sections and regulations 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,

Linda D. Foster

Deputy Tax Commissioner

AR/1-4318922309.R