I manufacture and install signs, including for churches -- am I taxed as a contractor consuming the materials, or as a retailer selling tangible personal property, and does selling to a church change anything?

Plain-English summary

A Virginia sign manufacturing and installation business was audited for January 2020 through December 2022 and assessed tax and interest on untaxed sales of manufactured signs. The business raised two arguments for correction: (1) it was really a "consuming contractor" that pays tax on its own materials rather than a retailer that collects tax from customers, since installed signs become attached to real estate; and (2) two of the audited sales went to churches, which it argued were exempt as part of the churches' religious mission.

Manufactured signs are taxed as retail sales, not contractor materials. The business cited an older 1996 ruling suggesting a sign attached to real estate keeps its character as real property. But in 2005, the General Assembly specifically amended Virginia law to treat manufactured signs as tangible personal property for sales tax purposes, regardless of whether the sign later becomes attached to or part of real property. The Department explained the legislative intent (citing its own 2005 Legislative Summary and a 2012 ruling on point) was exactly to override the general contractor-consumption rule for this one category of item — so a sign manufacturer must register as a retailer and collect sales tax on the sign's sales price, while any separately stated installation charge remains exempt under Va. Code § 58.1-609.5 2. The general regulation that treats contractors as consumers of the materials they install (23 VAC 10-210-410 A) contains its own caveat that other specific statutes can override that default rule — and the 2005 law change for manufactured signs is exactly that kind of override.

Selling to a church doesn't create an exemption. The business argued the church sales were "an integral part of the Church's mission." Virginia's church exemption (Va. Code § 58.1-609.10 16) only covers property used in actual religious worship services, or in libraries, offices, meeting/counseling rooms, and similar spaces used to carry out the work of the church and its ministries (including its schools). Consistent with a prior ruling addressing this exact question (P.D. 20-168), the Department held a manufactured sign simply isn't used for worship services or for carrying out the church's work — and, as with all Virginia tax exemptions, any doubt is resolved against the taxpayer claiming the exemption. No evidence showed the signs were used inside the church's worship or ministry spaces, so the church sales stayed taxable.

No relief for lack of notice or after-the-fact certificates. The Department also rejected the business's argument that it wasn't aware of the 2005 law change — the change was publicly announced in the Department's Legislative Summary, and taxpayers bear the responsibility of staying current on law changes. Likewise, exemption certificates for the church sales that surfaced only during the audit examination didn't help, since a dealer must inspect exemption certificates for completeness and exact-wording match at the time of the transaction, not after the fact.

What this means for you

Sign manufacturers and installers

Since 2005, you're a retailer for manufactured signs, not a consuming contractor — register, collect, and remit sales tax on the sign's sales price, keeping installation labor separately stated so it stays exempt. This is a specific carve-out from the general rule that treats contractors as consumers of materials they install.

Anyone selling tangible personal property to a church

The church exemption is narrow: it covers property actually used in worship services or in carrying out the church's work and ministries (including church schools). It does not extend to every purchase that supports the church's broader mission — signage, in particular, has already been held outside the exemption.

Businesses relying on older tax rulings

Check whether a later law change has superseded the precedent you're relying on — this business's citation to a pre-2005 ruling didn't help because the legislature specifically changed the underlying rule afterward.

Common questions

Q: I manufacture and install signs that get permanently attached to a building — do I pay tax as a contractor on my materials, or collect sales tax from my customer?
A: You collect sales tax from your customer on the sign's sales price, as a retailer — a 2005 law change specifically classifies manufactured signs as taxable tangible personal property regardless of later attachment to real estate.

Q: Is a sign I sell to a nonprofit church exempt from Virginia sales tax?
A: No. The church exemption only covers property used in actual worship services or in carrying out the church's work and ministries — a sign doesn't meet that description, even though it may serve the church's broader mission.

Q: What if I didn't know about the 2005 law change treating signs as tangible personal property?
A: That doesn't excuse the tax. The change was publicly announced in the Department's Legislative Summary, and taxpayers are responsible for staying current on changes to Virginia tax law.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-602 — manufactured signs included in the definition of "tangible personal property"
• Va. Code § 58.1-609.5 2 — exemption for separately stated installation labor
• Va. Code § 58.1-609.10 16 — church exemption for property used in worship services and carrying out the work of the church and its ministries
• 23 VAC 10-210-410 A — contractors generally treated as users/consumers of tangible personal property, subject to other specific statutes/regulations

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-130

Original ruling text

December 12, 2024

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

Dear *:

This is in response to your letter submitted on behalf of * (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessment issued for the period January 2020 through December 2022.

FACTS

The Taxpayer, a sign manufacturing and installation business in Virginia, was audited for the period at issue. As a result of the audit, tax and interest was assessed for untaxed sales of manufactured signs. The Taxpayer filed an application for correction contending that the business is acting as a consuming contractor and is not subject to sales tax on its sales of manufactured signs. Further, the Taxpayer contends that two of the transactions during the audit period were made to churches.

DETERMINATION

Manufactured Signs

The Taxpayer argues that tax is not applicable to a charge for constructing and installing a sign which that becomes attached to realty and that the business constructing and installing such sign must pay the tax on all property used in the construction and installation.

The auditor assessed tax on the sales of manufactured signs because they are included in the definition of “tangible personal property” under Virginia Code § 58.1-602.

The Taxpayer cites Public Document (P.D.) 96-133 (6/14/1996) and argues the definition in Virginia Code § 58.1-602 merely changes the classification of the property but does not change the nature of signs that become a permanent part of real estate. In 2005, the Virginia General Assembly amended the law resulting in the treatment of manufactured signs as tangible personal property. See the 2005 Legislative Summary published as P.D. 05-101 (6/30/2005). The intent of the law change was to treat a transaction for the sale and installation of a manufactured sign as a sale of tangible personal property regardless of the fact that the sign may be attached to or become part of real property. See P.D. 12-70 (5/03/2012). As a result, a sign manufacturer would be required to register for the collection and remittance of the retail sales tax based on the sales price of the manufactured signs sold at retail. Separately stated installation charges would be exempt from the tax pursuant to Virginia Code § 58.1-609.5 2.

Further, Title 23 of the Virginia Administrative Code (VAC) 10-210-410 A states ” [u]nless otherwise noted , the law treats every contractor as the user or consumer of all tangible personal property furnished to the contractor or by the contractor in connection with real property construction, reconstruction, installation, repair, and similar contracts.” [Emphasis added]. This regulation implies that other statutes and regulations may apply to a business’ sales and use tax responsibilities and requirements. The amendment to Virginia law and the caveat in 23 VAC 10-210-410 fulfill the legislative intent concerning the treatment of sign manufacturers for sales and use tax purposes.

Church Exemptions

In its application for correction, the Taxpayer contends that the sales of manufactured signs to churches are “an integral part of the Church’s mission and are not subject to tax.” Virginia Code § 58.1-609.10 16, provides, in pertinent part, that the retail sales and use tax does not apply to “[t]angible personal property purchased by nonprofit churches . . . for use (i) in religious worship services by a congregation or church membership while meeting together in a single location and (ii) in the libraries, offices, meeting or counseling rooms or other rooms in the public church buildings used in carrying out the work of the church and its related ministries, including kindergarten, elementary and secondary schools.”

The Virginia courts have consistently held that exemptions from the tax must be strictly construed and where there is any doubt, that the doubt must be resolved against the person claiming the exemption. See Commonwealth v. Community Motor Bus Co., Inc ., 214 Va. 155 (1973) and Golden Skillet Corp . v. Commonwealth , 214 Va. 276 (1972).

In P.D. 20-168 (9/22/2020), the Department has addressed the issue of selling manufactured signs to churches. The ruling concluded that a manufactured sign is not used for religious worship services or for carrying out the work of the church. See also Title 23 VAC 10-210-310.

Similarly, no evidence has been provided to indicate the signs sold by the Taxpayer were used in religious worship services by a congregation or church membership while meeting or in sanctuaries, libraries, offices, meeting or counseling rooms, or other rooms in the public church buildings where the work of the church and its related ministries was carried out.

Manufactured signs do not fit into the governing principle that for any church purchase to be exempt of tax, it must be related to carrying out the work of the church and its related ministries. As such, the Taxpayer’s sales to nonprofit churches do not qualify for the exemption.

CONCLUSION

Based on this determination, the assessment is correct. A revised bill, with interest accrued to date will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid withing thirty days of the date of the bill.

In its application for correction, the Taxpayer’s argument that proper exemption certificates for the sale of manufactured signs to churches submitted to the auditor during the audit examination is irrelevant.

As a Virginia dealer, the Taxpayer is responsible for inspection of exemption certificates from customers at the time of the transaction. Items included in the proper inspection are completeness of the document, and verification that items being sold to customers meet the exact wording of the certificate. The sale of manufactured signs to churches do not meet these standards in this case.

The Taxpayer argues that no public announcement about the General Assembly’s change in Virginia’s treatment of manufactured signs has been made. As indicated earlier, the Department publicly announced the law change in its 2005 Legislative Summary. In addition, the Department provides resources to all taxpayers regarding changes to statute and regulations, all available on the Department’s website. It is the responsibility of the taxpayer to stay current on all changes to Virginia Code and regulations that may affect their tax responsibilities.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **@tax.virginia.gov.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

Related Documents

96-133

05-101

12-70

20-168