Virginia – Taxability of Construction Materials for Overseas Use

SALT Report 1989 – The Virginia Tax Commissioner issued a ruling regarding the application of sales and use tax on construction materials for use overseas.  The Taxpayer is a Virginia dealer that sells materials to a customer who constructs US embassies overseas. The customer’s Virginia warehouse is the consolidated receiving point. This means that any materials purchased for use in overseas projects must first be shipped to a CRP, where the materials can be received, temporarily stored and prepared for shipment. Once the materials are ready for shipment, an agent from the State Department will inspect the materials as well as the shipping container. At this point, the container with the prepared materials is sealed and sent to a freighter for delivery.

Virginia provides an exemption for property purchased by a contractor if it is used solely in another state or in a foreign country, or if the property could have been purchased free from sales tax in another state or foreign country, and the property is stored temporarily in Virginia pending shipment to another state or country.

In its decision the Commissioner notes that because Virginia Code 58.1-610 treats contractors as consumers, any tangible personal property purchased by the contractor is generally taxable even in cases in which the contractor arranges for the purchased materials to be shipped overseas. Therefore, the resale exemption does not apply to the contractor’s purchases of materials for its use or consumption.

Additionally, the Commissioner notes that the foreign commerce exemption provided in Virginia Code § 58.1-609.10 4 does not apply because the contractor is taking possession of the materials in Virginia and Virginia law imposes tax on such purchases, unless it can be established that the purchases qualify for an exemption in Virginia Code § 58.1-609.3 1.

As a result, the Commissioner determined that the contractor was liable for Virginia sales tax on its purchases of tangible personal property regardless of whether the contractor arranged for the purchased materials to be shipped overseas.

For Further Information:

Virginia Department of Taxation – Ruling of Commissioner P.D. 12-207