Effective July 1, 2017, the Virginia General Assembly has enacted House Bill 1890 and Senate Bill 1308, which change the Retail Sales and Use Tax treatment of certain retail sales that include installation services either provided by the retailer itself or contracted to another entity. The law now requires certain retailers that previously collected sales tax from customers on these sales to pay the tax on their purchase or use of these items.
The change in law affects retailers that sell and install fences, Venetian blinds, window shades, awnings, storm windows and doors, floor coverings, cabinets, countertops, kitchen equipment, window air conditioning units, and other like or comparable items. Under the prior law, there was an exception for these types of businesses that allowed them to collect sales tax from their customers on the sale of these items that included installation services. Provided that these businesses maintained a retail or wholesale place of business and an inventory of these items; as well as performed installation as part of or incidental to the sale of the items, they qualified for this exception.
Under the new law, this exception has been removed. These businesses will now be required to either pay sales tax to their vendors at the time of purchase or accrue and pay use tax at the time of sale for items sold with installation services.
Retail Sales and Use Tax treatment for the businesses listed above will now depend on whether or not the sale of the retail item will include installation services. At the time of purchase from the vendor, if it is known whether installation services will or will not be provided, the following tax treatments should be applied:
- If it is known that no installation services will be provided in combination with the retail sale, the business should use its resale exemption certificate to purchase the item for resale and subsequently collect sales tax from the customer at the time of sale.
- If it is known that installation services will be provided in combination with the retail sale, the business should pay sales tax to its vendor at the time of purchase.
If the business cannot be certain whether the item will be sold with or without installation services at the time the item is purchased from the vendor, there are two options:
- Pay sales tax to the vendor at the time of purchase.
If the item is ultimately sold without installation services, sales tax must be collected from the customer. The business should then report the sale on its Retail Sales and Use Tax return for the month of the sale. The purchase price of the item will be reported as a deduction on Line 3 including sales tax, which will allow the business to recover the amount of sales tax previously paid to the vendor. If the item is ultimately sold with installation services, no sales tax should be collected from the customer and no further action is necessary.
- Purchase the item on an exempt basis by presenting the resale exemption certificate to the vendor.
If the item is ultimately sold without installation services, sales tax should be collected from the customer at the time of sale. If the item is ultimately sold with installation services, the business should report and remit use tax on the purchase price of the item at the time the item is withdrawn from inventory.
If you have any questions regarding the information in this article, please contact our office at 703.385.8888 or email@example.com.
Written by: Susan George
Susan George joined Thompson Greenspon as a Tax Senior in the fall of 2017. Prior to joining the firm, she worked as a Tax Accountant in the construction & real estate group at a large regional public accounting firm in Tysons, VA.
Susan is responsible for the preparation and review of Federal and multi-state tax returns for corporations, partnerships, trusts, estates, nonprofit organizations, and individuals. She has substantial experience serving clients in the construction and real estate industries and nonprofit organizations.
Susan holds a Bachelor of Business Administration from James Madison University and graduated in 2013. Following her graduation, she attended George Mason University where she enrolled in the Accounting Certificate program to become a CPA. Susan has been a licensed CPA in Virginia since 2016. She is a member of the American Institute of Certified Public Accountants and the Virginia Society of Certified Public Accountants.