Virginia – Taxability of Purchases Made on Behalf of the US Government

SALT Report 1657 – The Virginia Department of Taxation issued a ruling regarding a Taxpayer’s rentals of stage equipment and supplies used to provide entertainment, production, and promotional services for various naval air station events.
In Virginia, if a transaction is for the provision of services, the contractor is deemed to be the taxable user and consumer of all tangible personal property used to perform its services, even if title to the property passes to the government, or the contractor is fully reimbursed by the government.
Additionally, Title 23 VAC 10-210-690 provides, “sales to the United States or to the Commonwealth of Virginia or its political subdivisions made without the required purchase orders and not paid out of public funds are taxable.”
The Department found that although the Taxpayer contracted with the naval air station to provide staging and entertainment services and the agreement clearly showed that the naval station directly paid the fees for all vendors hired by the Taxpayer, the agreement was unsigned and did not name the naval station as the purchaser of services.
On this occasion the taxpayer presented no documentation that proved that the stage equipment was acquired as the result of official purchase orders.  Further, the Taxpayer presented an invoice that included the cost of staging equipment that was used for an event; however the Department found that the Taxpayer was the end user of the equipment when he provided his services at the naval air station.
Based on the above circumstances it was ruled that the Taxpayer was liable for the tax on the rental of tangible personal property used in the provision of those services in accordance with Va. Code § 58.1-609.5 1.
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