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Virginia, like Texas, treats a contractor as the consumer, or the user, of materials that it purchases in order to perform construction and other contracting services.  See generally, Virginia Field Audit Guidelines. In the case of Texas, this application of this rule depends on the invoice methodology used by the contractor, i.e., whether the contractor uses a separated or completed contract. See generally, Texas Audit Procedures for Contractors and Repairmen.

In the instant case, the taxpayer fabricates and delivers to job sites various tangible personal property (“TPP”) which is used in real property construction, but also provides to its customer “deliver-only” TPP which is used by the other contractors in a performance of their contracts.  This property includes anchor bolts, plates, bollards and other similar construction materials.  The taxpayer took the position that the “deliver-only” TPP should be treated the same as the other structural components which the taxpayer provided to its customers in connection with construction contracts.  The taxpayer actually constructed the structural components, as opposed to no physical changes being made to the “deliver-only” TPP. The taxpayer pointed to Va. Code § 58.1-610 A which provides that a person who performs construction or any other service with respect to real estate or fixtures thereon and furnishes tangible personal property in connection with that construction “shall be deemed to have purchased such tangible personal property for use or consumption.”  Therefore, if the taxpayer was deemed to have consumed the “deliver-only” items, it would not be required to collect sales tax under the Virginia Tax Code.  The taxpayer also pointed to past audits in which the Virginia Tax Authority had not imposed sales tax on the deliver-only items.

The Tax Commissioner disagreed finding that because the taxpayer does not install the “deliver-only” items, it is not the end user or consumer of the “deliver-only” items.  Rather, the taxpayer's customers, the other contractors, are the ultimate end users or consumers of the “deliver-only” items.  The provision by the taxpayer of the “deliver-only” items should therefore be considered a retail sale.  The Tax Commissioner pointed to Public Document 97-45 (Feb. 6, 1997), as authority for its position.

Contractors should be wary in cases in which it had has mixed contracts with third parties.  Where a contractor is engaged in providing contracting services, as well as the business of selling TPP to its customer, it is important to identify such amounts and treat them accordingly.  A person who is defined as the “user or consumer of all tangible personal property,” as explained in Va. Code § 10-210-410 A, may also be engaged in the business of selling tangible personal property to customers such as other contractors using that same TPP.  If so, the person is the Virginia tax authorities will treat the person as a dealer with respect to such sale, and would be required to obtain its Certificate of Registration (Form ST-4) identifying that it is selling tangible, personal property to customers for their use or consumption.