Who pays Virginia sales or use tax when countertops are fabricated and installed through retailers and contractors?

Subject

Treatment of Certain Real Property Contractors, Dealers, Installations

Plain-English summary

Virginia clarified how its July 1, 2017 contractor-law change applied to custom countertops sold through a retailer.

When the contractor both fabricates and installs the countertops, the contractor is the user or consumer and pays sales tax to its raw-material vendor, or use tax if the vendor does not collect it. The retailer does not collect sales tax from the homeowner because the installed job is a nontaxable real estate contracting service.

The same result applies when a subcontractor fabricates and installs: the contractor supplying raw materials collects tax from the subcontractor, or the subcontractor pays use tax. But when the customer buys countertops without installation, the retailer purchases them for resale and collects sales tax from the customer.

Citations and references

• 2017 Acts of Assembly, Chapters 436 and 449.
• 23 VAC 10-210-410.
• Tax Bulletin 17-8, P.D. 17-139.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-180

Original ruling text

October 13, 2017

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your request for clarification regarding the effect of a law change governing the sales and use tax treatment of certain real property contractors.

Effective July 1, 2017, House Bill 1890 and Senate Bill 1308 (2017 Acts of Assembly , Chapters 436 and 449) repealed the portions of the Retail Sales and Use Tax requiring dealers that both make retail sales and also install certain listed items to collect the tax from their customers on such sales. Under prior law, such listed items included fences, venetian blinds, window shades, awnings, storm windows and doors, floor coverings, cabinets, countertops, kitchen equipment, window air conditioning units, and other like or comparable items. In the same manner as other real property contractors, these retailers are now required to pay the tax on their purchase or use of the listed items.

Tax Bulletin 17-8, published on June 29, 2017 as Public Document 17-139, contains guidance and examples to aid the public's understanding of the law change. You request additional clarification in the three scenarios detailed below.

SCENARIO 1:

STEP 1. Customer (a homeowner) buys a set of countertops with installation from Retailer.

STEP 2. Retailer issues a purchase order to Contractor for the job, including installation.

STEP 3. Contractor:

A.Measures.

B.Orders raw materials from an unnamed vendor.

C.Manufactures countertops.

D.Installs countertops.

E.Invoices Retailer (providing proof of completion and acceptance by Customer).

Answer: As Contractor is the fabricator and installer in this scenario, the unnamed vendor would be responsible for collecting sales tax from Contractor on its purchase of the raw materials. If the unnamed vendor does not collect sales tax from the Contractor, the Contractor would pay use tax to the Department. Retailer would not collect sales tax from Customer, nor would Customer pay use tax on the transaction, because the provision of real estate contracting services is not subject to the Retail Sales and Use Tax. For additional information regarding the Retail Sales and Use Tax treatment of fabricators who are also contractors, please see 23 Virginia Administrative Code § 10-210-410.

SCENARIO 2:

STEP 1. Customer (a homeowner) buys a set of countertops with installation from Retailer.

STEP 2. Retailer issues a purchase order to Contractor for the job, including installation.

STEP 3. Contractor issues a purchase order to Sub-Contractor for the job, including installation.

STEP 4. Sub-Contractor:

A.Measures Job.

B.Orders materials from Contractor

C.Manufactures countertops.

D.Installs countertops.

E.Invoices Contractor for complete job (providing proof of completion and acceptance by the Customer).

STEP 5. Contractor Invoices Retailer.

Answer: As Subcontractor is the fabricator and installer in this scenario, Contractor would be responsible for collecting sales tax from Subcontractor on its purchase of the raw materials. If Contractor does not collect sales tax from Subcontractor, then Subcontractor would pay use tax to the Department. Retailer would not collect sales tax from Customer, nor would Customer pay use tax on the transaction, because the p rovision of real estate contracting services is not subject to the Retail Sales and Use Tax. For additional information regarding the Retail Sales and Use Tax treatment of fabricators who are also contractors, please see 23 Virginia Administrative Code § 10-­210-410.

SCENARIO 3:

STEP 1. Customer (a homeowner) buys a set of custom countertops from Retailer (with no installation).

STEP 2. Retailer issues a purchase order to Contractor for the countertops.

STEP 3. Contractor fabricates and delivers countertops to Retailer or to Customer and invoices Retailer (providing proof of delivery).

Answer: Retailer would purchase the countertops tax-exempt as a purchase for resale and would collect sales tax from Customer. Without the purchase of installation services by the Customer, the actions taken by Contractor do not become part of the analysis.

I hope the above information responds to your inquiry. 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 regulation and public document cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's website. If you have any questions about this determination, please contact * in the Office of Tax Policy, Policy Development Division, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

PD/1-6675091313