SALT Report 2298 – The Virginia Tax Commissioner issued a ruling regarding a Taxpayer’s charges for welding services. During an audit it was determined that the Taxpayer was fabricating tangible personal property, and providing repair parts and repair services without charging or collecting sales tax. The Taxpayer appealed the audit decision and requested a waiver of the Department’s assessment. The Taxpayer stated that he was unaware of the obligation to collect sales tax on his sales of fabricated works and repair parts. The Taxpayer also stated that he was experiencing financial difficulties and would be forced to close his business if he was required to pay the audit assessment.
In its decision the Commissioner referred to Title 23 of the Virginia Administrative Code (VAC) 10210-560 (B) which states that, “tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work.”
The Department’s position has long been that tangible personal property that is cut, sawed, shaped, bent, threaded, welded, or subject to an operation that changes the property’s form or state is considered to have been fabricated. Accordingly, the Taxpayer’s welding services were deemed to be taxable fabrication services, and charges for those services are subject to sales tax.
The Department’s audit also disclosed that the Taxpayer was not separately stating its charges for repair parts used to render repair services. The Commissioner stated that because the parts and labor charges were not separately stated, the entire charge is taxable as required by Virginia Code § 58.1-609.5 (2). However, if the repair parts are simply resold to the customer the Taxpayer can purchase these items exempt from tax using a resale certificate.
In addressing the issue of being unaware of his responsibility to collect retail sales tax the Commissioner stated that as required by law the Department has distributed and made available to the general public several publications regarding a retailer’s obligation to collect and remit sales tax. Therefore, the Taxpayer’s argument that he was unaware of his obligations was dismissed.
As for the financial hardship, the Commissioner referred to Virginia Code § 58.1-105 which grants the Tax Commissioner the authority to accept an offer in compromise to settle claims of disputed or doubtful liability or doubtful collectibility. In this particular case, the Commissioner found no cause for an abatement of the tax and interest based on doubtful liability because the Taxpayer did not submit the required financial statements that would verify an inability to pay the assessment.
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