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Payments made by a taxpayer to an affiliated company for the use of equipment constituted lease payments subject to Virginia sales and use tax.  The affiliate made monthly loan payments for the equipment and charged the taxpayer a monthly payment for the same amount.  The taxpayer’s payments to the affiliate company for the use of equipment for consideration, without the transfer of the title of such equipment, constituted a taxable lease, not loan payments.  The taxpayer’s argument that no profit was included in the monthly payments was found irrelevant and did not change the application of the tax.  Additionally, the common ownership of the two companies does not render the payments tax exempt. This ruling emphasizes the importance of understanding the tax consequences of intercompany transactions.  (Ruling of Commissioner, P.D. 12-159, Virginia Department of Taxation, October 12, 2012)


Virginia has enacted legislation requiring certain remote sellers that utilize in-state facilities to collect and remit Virginia sales tax. Under the new law, a dealer is presumed to have nexus in Virginia if any commonly controlled person maintains a distribution center, warehouse, fulfillment center, office, or similar location in Virginia that facilitates the delivery of tangible personal property sold by the dealer to its customers. Dealers may rebut the presumption if they can demonstrate that the commonly controlled person’s activities in Virginia are not significantly associated with the dealer’s ability to establish or maintain a market in Virginia. “Commonly controlled person” is defined as any person that is a member of the same “controlled group of corporations” as the dealer or any other entity that bears the same ownership relationship to the dealer as a corporation that is a member of the same controlled group of corporations. The law takes effect on the earlier of September 1, 2013, or the effective date of federal legislation that authorizes states to require a seller to collect taxes on sales of goods to in-state purchasers regardless of the location of the seller. If such federal legislation is enacted prior to August 15, 2013, and the effective date of the federal legislation is after September 1, 2013 but on or before January 1, 2014, then the provisions will become effective on January 1, 2014. For an update on this news item, click here to view our news item Virginia Affiliate Nexus Law Becomes Effective September 1, 2013.  (Ch. 590 (S.B. 597), Laws 2012, effective as noted)


A Virginia taxpayer disputed its classification on an audit as a real property contractor and maintained that it is a retailer of countertops, regardless of whether or not it installs the countertops. According to the Virginia Tax Commissioner, the countertop sold and installed by the taxpayer became real property upon installation, and therefore, the taxpayer was correctly classified as a real property contractor. Its sales and installations of granite and marble countertops were subject to retail sales and use tax. Furthermore, the Commissioner ruled that that the machinery, tools, and supplies used to fabricate the countertops were also subject to tax. Generally, tools and supplies used to install tangible personal property are taxable at the time of purchase, whether the installed property remains tangible or becomes real property after installation. (Ruling of Commissioner, P.D. 10-20, Virginia Department of Taxation, March 26, 2010)


As a result of an audit, a Virginia taxpayer issued a letter requesting correction of a retail sales and use tax assessment. According to the taxpayer, no use tax liability should have been assessed because its customers (wholesalers/contractors) charge sales tax on the solid surface countertops sold and installed by the taxpayer, and by assessing use tax under these circumstances double taxation would be applied. Furthermore, the taxpayer also contended it was not given prior notice of any policy change, especially since the prior audit did not apply use tax to the solids surface materials furnished and installed. The Virginia Tax Commissioner found the assessment by the Department of Taxation to be correct and considered the taxpayer the user or consumer of all materials used in transactions requiring it to sell and install kitchen countertops, regardless of whether made with laminated, sold surface, or natural materials. The taxpayer failed to furnish any documentation from the prior audit period in support of its contentions and in fact, a review of the prior audit report showed that the taxpayer was engaged in the fabrication of laminated countertops for sale to home builders, distributors, and retailers. The taxpayer’s sales of solid surface countertops and related materials were subject to Virginia retail sales and use tax. (Ruling of Commissioner, P.D. 09-102, Virginia Department of Taxation, July 24, 2009)


A Virginia residential building contractor is liable for the applicable use tax on its purchases of floating floors it purchased; not the subcontractor it utilized to install the flooring. Virginia law imposes tax upon purchases made by real estate construction contractors, not subcontractors. In addition, although the seller is legally obligated to collect the tax from the purchaser, Virginia courts have held the tax is the legal debt of the purchaser (Ruling of Commissioner, P.D. 09-154, Virginia Department of Taxation, October 16, 2009).



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