The Virginia Department of Taxation recently released the Rulings of the Tax Commissioner regarding the application of the retail sales and use tax to purchases of tangible personal property made pursuant to a government contract.
The taxpayer that requested the ruling is a subcontractor that purchases raw materials in fulfillment of a contract with a prime contractor serving a tax-exempt entity. The raw materials are fabricated into products installed in buildings during real property construction. The tax commissioner ruled that the taxpayer is the end user and consumer of the tangible personal property purchased in relation to the real property construction contract and does not make a retail sale to the prime contractor.
In addition, the taxpayer does not temporarily store the tangible personal property in Virginia before the product is delivered to outside of Virginia. The property is not exempt from sales tax in the state where it is delivered for the construction project because the taxpayer is the end user and consumer of the property. In conclusion, the taxpayer is not entitled to the Virginia sales tax exemption and is liable for tax on the tangible personal property purchased to fulfill the real property construction.
If you have any questions regarding the Virginia sales and use tax for government contractors, please contact Michael Cho at firstname.lastname@example.org or 202.480.2709.
The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.
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