Virginia Contractor Liable for Tax on Purchase of Cabinets Installed for Customers

Virginia has ruled that a cabinet installer is a contractor, and not a retailer, for sales and use tax purposes, and must pay sales tax on its purchases of cabinets installed for customers. The taxpayer contended that it meets Virginia’s three-pronged retailer test because it maintains a retail or wholesale place of business, performs installation, and maintains an inventory of materials that enter into or become a component part of the shelving. The taxpayer was not able to show that it maintains an inventory of materials. The cabinets and shelving units stored by the taxpayer until installed do not qualify as inventory. The Department of Taxation has consistently held that the purchase of equipment on a job-to-job basis that is temporarily stored in a warehouse until it is ready to be delivered and installed does not constitute inventory. While the taxpayer occasionally installs trim pieces or modifies shelves using a supply of parts for this purpose, these parts would not qualify as inventory because they constitute only a few of the parts necessary to fabricate the finished cabinets. Since the taxpayer does not meet all of the criteria of the retailer definition, it cannot be classified as a retailer and is deemed a contractor with regard to these transactions. Since it is a contractor, the taxpayer is liable for tax on purchases of tangible personal property furnished in connection with its installation contracts. The taxpayer is also prohibited from charging customers sales tax on the invoiced cost of shelving and cabinets, regardless of whether the installation charge is included in the total project price, separately stated, or calculated and provided to the customer, but not separately stated. (Ruling of Commissioner, P.D. 13-204, Virginia Department of Taxation, November 1, 2013)

Posted on April 11, 2014