How did Virginia sales tax apply to ATM installation, sign replacement, repairs, and delivery for financial institutions?

Subject

Provides installation, repair and construction services for financial institutions.

Plain-English summary

Virginia separated the contractor's ATM work into property sales, exempt labor, repair parts, and real-property work. The result depended on what the contractor furnished, whether charges were separately stated, whether the ATM was permanently affixed, and whether the work occurred before or after July 1, 2011.

For a contractor primarily engaged in furnishing and installing ATMs or electronic or physical security property for financial institutions, § 58.1-610(G) changed the treatment beginning July 1, 2011. The business was treated as a retailer: it bought qualifying property for resale and collected sales tax from the customer, even when the property was installed into real estate. Before that date, a permanently installed ATM was treated as part of the realty, making the installer the taxable user of installation materials.

Labor-only replacement of signage on ATM surrounds was an exempt service when the customer supplied the signs and the contractor furnished only incidental patching materials. If the contractor furnished manufactured signs, it had to collect tax on the signs' retail price, while separately stated installation remained exempt.

Separately charged repair labor was exempt for a freestanding ATM and for ATM repairs on or after July 1, 2011, but transferred repair parts were taxable. Earlier repair work on a permanently affixed ATM followed real-property-contractor rules: the contractor paid tax on materials and did not charge the customer sales tax on the contract price.

Delivery of a customer's own ATM from storage to an installation site, or moving it between locations, was not taxable because no retail sale occurred. If the contractor sold an ATM, separately stated delivery remained exempt under the cited rules.

What this means for you

ATM and security-system installers

Determine whether your business is primarily engaged in the activity covered by § 58.1-610(G). For qualifying post-June 2011 transactions, retailer treatment can apply even when the installed item becomes part of the real estate.

Sign and branding contractors

Labor-only work can be exempt, but furnishing manufactured signs creates a taxable property sale. Separate the installation charge if you want the ruling's installation-labor treatment to be clear.

Repair businesses

Separately state labor and parts. The ruling exempted the labor but required collection on repair parts in the retailer-treatment situations it described.

Common questions

Q: Did pouring a concrete island and affixing an ATM make it real property?
A: The Department found that the intended permanent ATM location made it part of the realty, but the post-June 2011 retailer statute changed how qualifying installers collected tax.

Q: Is labor to replace customer-owned ATM signs taxable?
A: Not on these facts when the contractor supplied no signs and provided only labor and incidental patching materials.

Q: Are repair parts taxable when repair labor is exempt?
A: Yes. The contractor had to collect tax on parts transferred to the customer while separately charged repair labor remained exempt.

Q: Is moving a customer's own ATM taxable?
A: No. The ruling treated delivery or relocation of customer-owned equipment as a nontaxable service when no retail sale occurred.

Citations and references

• Va. Code §§ 58.1-609.5(1)-(3) and 58.1-610, including § 58.1-610(G).
• 23 VAC 10-210-3050, 23 VAC 10-210-410, and 23 VAC 10-210-6000.
• 2011 House Bill 1524 and 2005 House Bill 2774.
• Public Documents 91-166 and 98-26.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-59

Original ruling text

April 30, 2014

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request a ruling on behalf on an unidentified client (the "Taxpayer") with respect to the application of the retail sales and use tax to certain construction, installation and repair contracts. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer provides installation, repair and construction services primarily for financial institutions. It typically engages in three types of contracts: (1) installation of automated teller machines ("ATMs") as a subcontractor or general contractor, (2) repair services, and (3) construction services performed for new construction, enhancements, or remodeling.

For each contract type, I have stated below the facts presented, the Taxpayer's questions, and my response to such questions. The Taxpayer also asks a question about delivery charges, which is set out below in a similar manner.

RULING

Type One Contracts

Facts. Under a Type One contract, the Taxpayer removes and disposes of the existing kiosk, removes and replaces the existing ATM, moves existing conduits, provides a 30 amp circuit and connects it to the new ATM, removes and replaces bollards ( i.e. , vertical pipes used as vehicle barriers to protect the ATM and building), pours a concrete island to accommodate a new ATM, repairs holes for abandoned pneumatic tubes, supplies and installs the topper ( i.e. , an accessory that attaches to the top of the ATM and generally used for branding and/or storage purposes), and cleans the site. The price charged by the Taxpayer includes labor and materials. The Taxpayer does not sell the ATMs but only installs them. In these contracts, the Taxpayer is pouring the concrete islands and affixing the ATM, electrical conduits, circuits, bollards, and other materials to real property.

Questions. Are Taxpayer's sales under Type One contracts considered construction services? If so, what are the Virginia sales tax rules applicable to Taxpayer's transactions under Type One contracts?

Response. Prior to July 1, 2011, the Department treated ATM installations as either the sale of tangible personal property if freestanding or the sale of construction services if permanently affixed to a constructed opening in the realty, such as in an outdoor wall of a bank building. See Public Document (P.D.) 91-166 (8/7/91). The Department has not previously ruled on whether an ATM attached to a concrete island at the bank building site remains tangible personal property or becomes part of the realty. Notwithstanding, the Tax Commissioner stated in P.D. 91-166 that it was apparent based on the constructed opening of the bank building that the intent was to permanently maintain an ATM in the space provided. Similarly, it is apparent based on the removal and replacement of an ATM in the Taxpayer's Type One contracts that the intent is to permanently maintain an ATM in the space provided. Accordingly, it is my opinion that an ATM installed pursuant to Type One contracts becomes part of the real estate. In these instances, the Taxpayer is liable for the tax on the cost price of all installation materials.

Effective on and after July 1, 2011, however, businesses primarily engaged in the furnishing and installation of ATMs and tangible personal property that provides electronic or physical security on real property used by financial institutions will be treated as retailers of such property for the purpose of the retail sales and use tax. See Va. Code § 58.1-610 G. As a retailer, each business is required to collect the tax from purchasers, rather than paying the tax on its purchases of the material, even in situations in which the property is installed on real estate that is not for the use of a financial institution. Qualifying businesses must, therefore, give their suppliers a resale exemption certificate (Form ST-10) when making purchases of items for resale. For more information on the change, see House Bill 1524 of the 2011 session of the General Assembly.

Type Two Contracts

Facts. Under Type Two contracts, the Taxpayer provides installation labor to replace signage on the ATM surrounds ( i.e. , coverings that enclose all sides of the ATM) at various locations for its customers. For example, if the customer merges with another financial institution, or updates its logo or signage, the Taxpayer typically provides the following services:

Site surveys to review labor and material needs for replacing the signs on ATM surrounds,

Installation labor to replace signs on ATM surrounds, and

Out of scope fees or miscellaneous services to replace signs on ATM surrounds, such as charges for patching or filling in holes not used for the new signage or patching damage to the property left from removing the old signage.

In such contracts, the Taxpayer is typically installing signage to an existing ATM's surrounds, which may be affixed to real property, or may be free-standing.

Questions. Are Taxpayer's sales under Type Two contracts considered installation services? If so, what are the Virginia sales tax rules applicable to Taxpayer's transactions under Type Two contracts?

Response. Based on the facts provided, it appears that the Taxpayer does not furnish the signs. Rather, it appears that the Taxpayer may only be furnishing patching materials. If this is correct, the Taxpayer's transaction is for the provision of exempt services.

In the event the Taxpayer furnishes manufactured signs, the Taxpayer would be liable for the collection of the Virginia sales tax on the retail sales price charged for such signs. Separately stated installation would not be taxable. For more information on manufactured signs, see House Bill 2774 passed by the 2005 General Assembly and the accompanying impact statement that explains the law change for manufactured signs. Such house bill and impact statement may be found by a search in the Legislative Information System of the Virginia General Assembly's website located at virginiageneralassembly.gov .

Type Three Contracts

Facts. The Taxpayer typically provides repair labor to fix ATM topper strut brackets and re-attach the bolt or screw to the ATM topper.

Questions. Are Taxpayer's sales under Type Three contracts considered repair services? If so, what are the Virginia sales tax rules applicable to Taxpayer's transactions under Type Three contracts?

Response. Virginia Code § 58.1-609.5 1 provides an exemption from the sales and use tax for services rendered by repairmen for which a separate charge is made. Virginia Code § 58.1-609.5 2 also provides an exemption from the tax for an amount separately charged for labor or services rendered in repairing property sold. Accordingly, a separate labor charge for repairing a freestanding ATM or repairing any ATM on or after July 1, 2011 will be exempt of the tax. In these instances, the Taxpayer should be registered to collect the sales tax on any repair parts transferred to customers. For more information on repair businesses, see Title 23 Virginia Administrative Code (VAC) 10-210-3050.

For repairs made to ATMs that are permanently affixed to real property, such as repairs performed prior to July 1, 2011 on non-freestanding ATMs, the entire charge is nontaxable in accordance with the real property contractor provisions of Va. Code § 58.1-610. In such instances, the Taxpayer is deemed the taxable user or consumer of all tangible personal property used to repair real property and does not pass on the tax to the customer as a tax. For more information, see Title 23 VAC 10-210-410.

Delivery Charges

Facts. The Taxpayer charges to deliver the customer's equipment to a location from its warehouse. If the customer is renovating a location, or moving ATMs from one location to another, the Taxpayer may store the ATMs in a warehouse and subsequently deliver the equipment to a location per the customer's directive. The Taxpayer charges a delivery fee for the transportation of the customer's own equipment to the customer's location.

Question. Are Taxpayer's delivery charges subject to Virginia sales and use

tax?

Response. It appears that the Taxpayer does not sell the ATM. As such, a charge made for the delivery of the ATM to the installation site is not subject to the tax. If there is no retail sale of tangible personal property, a charge for moving ATMs from one location to another for reinstallation is not taxable. See Va. Code § 58.1-609.5 1. Also see the relocation and installation charges addressed by P.D. 98-26 (2/13/98).

Should the Taxpayer primarily engage in furnishing and installing ATMs in real property for the use of financial institutions on or after July 1, 2011, it will need to collect and remit the sales tax on the ATM charge but not on separately stated delivery charges. See Va. Code § 58.1-609.5 3 and Title 23 VAC 10-210-6000.

CONCLUSION

This response 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, regulations and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. As previously stated, the impact statements for House Bill 1524 and House Bill 2774 may be found in the Legislative Information System at virginiageneralassembly.gov. If you have any questions about this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4800528303.R