West Virginia Code of State Rules
Agency 110 - Tax
Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT
Series 110-15 - Consumer Sales And Service Tax And Use Tax
Section 110-15-107 - Contracting: General Rules
Universal Citation: 110 WV Code of State Rules 110-15-107
Current through Register Vol. XLI, No. 38, September 20, 2024
107.1. Application. - This regulation prescribes the rules which persons engaged in the business of contracting must follow to comply with this State's consumers sales and use tax laws, W. Va. Code ''11-15 and 11-15A. The word "contracting" as used herein is a word of art. It is important for the taxpayer to first determine whether he is engaged in contracting activity as outlined in these regulations before applying these rules to his activities. A person who provides contracting services does not collect consumers sales or use tax from his customer on the gross proceeds he derives from providing the contracting service. Such persons are generally taxable on all of their purchases of tangible personal property or taxable services for use or consumption in providing the tax exempt contracting service. Leases of tangible personal property are also taxed. For a person engaged solely in the business of contracting, these rules are not difficult. Frequently, however, persons engaged in the business of contracting are also engaged in other business activities which are subject to different rules. A person engaged in two or more business activities or in different types of contracting must learn what the different rules are and when they apply. Otherwise, such person may find that he has overpaid or underpaid his consumers sales and use tax liability. For example, a person engaging in tax exempt contracting activity may also provide taxable repair services or sell tangible personal property. While a person engaging in tax exempt contracting must generally pay consumers sales and use taxes on his purchases of tangible personal property for use or consumption in that activity, a person providing taxable services or selling tangible personal property may purchase tangible personal property for resale and give the supplier an exemption certificate in lieu of paying the tax thereon. Special rules exist for persons who engage in the following activities:
107.1.1. Contractors
who are subject to the transition rules. See Section 108 of these regulations
for a detailed explanation of these rules.
107.1.2. Contracting for governmental
entities. See Section 109 of these regulations for a detailed explanation of
these rules.
107.1.3. Installation
of certain tangible personal property where the installation thereof is
incidental to the sale thereof by a retail dealer. See Section 114 of these
regulations for a detailed explanation of these rules.
107.1.4. Contractors who produce or
manufacture tangible personal property which is used or consumed in their
contracting activity. See Section 112 of these regulations for a detailed
explanation of these rules.
107.1.5. Installation of tangible personal
property. See Section 111 of these regulations for a detailed explanation of
these rules.
107.1.6. Maintaining,
servicing or repairing tangible personal property. See Section 115 of these
regulations for a detailed explanation of these rules.
107.1.7. Maintaining, servicing, repairing,
altering, improving, or decorating of buildings, structures or real property.
See Section 116 of these regulations for a detailed explanation of these
rules.
107.1.8. Contracting by
nonresident persons. See Section 110 of these regulations for a detailed
explanation of these rules.
107.1.9. Contractors who engage in producing
natural resources or in reclamation, waste disposal or environmental activities
associated with the production of natural resources. See Section 123 of these
regulations for a detailed explanation of these rules.
107.2. Basic Rules Relating to Contracting.
107.2.1. "Contracting" Defined. - Effective
July 1, 1989, "Contracting" means the furnishing of work, or both material and
work, for another by a contractor in fulfillment of a contract for the
construction, alteration, repair, decoration or improvement of a new or
existing building or structure (or any part of a building or structure), or for
the removal or demolition of a building or structure (or any part of a building
or structure), or for the alteration, improvement or development of real
property, but only when such activity results in a capital improvement to a
building or structure or to real property. When such activity does not result
in a capital improvement, the activity is a taxable service.
107.2.1.1. By statute, merchants who sell
certain types of tangible personal property from their inventory and as part of
the sale agree to install the property or to arrange for its installation are
not engaged in contracting. See Section 114 of these regulations for further
discussion of this rule.
107.2.1.2.
Generally, subcontractors who furnish services to prime contractors in
fulfillment of the prime contractors contract resulting in a capital
improvement to a building or other structure or to real property are treated as
contractors. See Section 107.2.7.2. However, subcontractors who are "retail
dealers" within the guidelines set forth in Section 114 of these regulations,
who furnish tangible personal property with incidental installation, remain
retailers and must charge the sales and service tax on these types of sales to
prime contractors.
107.2.1.3. Other
Definitions. - The definitions of other terms relevant to this regulation may
be found in Section 107.3 of these regulations.
107.2.2. "Contractor" Defined. - A contractor
is any person who is engaged in the business of contracting. The phrase "person
who is engaged in the business of contracting" as used herein means any person
who offers contracting service to the public or to others for a consideration,
whether such person offers the contracting service continuously, part-time,
seasonally or for short periods. A contractor may be a prime contractor,
subcontractor, general contractor or specialty contractor.
107.2.2.1. Persons who provide taxable
services to contractors in fulfillment of contracts resulting in a capital
improvement to a building or structure or to real property are treated as
contractors. See Section 107.2.7.2.
107.2.3. Form of Contract Not Controlling. -
Beginning July 1, 1989, the form of the contract is no longer controlling. Any
activity that falls within the scope of contracting constitutes contracting for
purposes of the West Virginia consumers sales and use tax laws regardless of
whether the contract governing such activity is written or oral and regardless
of whether the contract is in substance or form a lump sum contract, a
cost-plus contract, a time and materials contract (whether or not open ended),
or any other kind of contract.
107.2.3.1.
Transition Rule for Open-Ended Time and Material Contracts. - Prior to July 1,
1989, certain time and material contracts for contracting type activity were
not treated as contracting. The materials component of such a contract was
treated as a sale of tangible personal property; and the labor component of the
contract was treated as the providing of a taxable service. Prior law continues
to apply to contracts entered into prior to July 1, 1989. This transition rule
is discussed further in Section 108.1.1.1 of these regulations.
107.2.4. Imposition of Tax. -
Unless otherwise noted, the consumers sales and use tax laws treat every
contractor as the user or consumer of all tangible personal property or taxable
services furnished to him or by him in connection with contracting activity.
Since March 1, 1989, a contractor must pay consumers sales and use taxes on his
purchases of tangible personal property or taxable services that are or will be
directly used or consumed in the activity of contracting unless such purchases
fall under one of the transition rules or are of materials used or consumed in
contracting for a governmental entity. Contractors have been required, since
July 1, 1987, to pay consumers sales and use taxes on all purchases of tangible
personal property or taxable services not directly used in contracting unless
such purchases fall under one of the transition rules. Contractors who produce
or manufacture tangible personal property which they use or consume in their
contracting activity must pay consumers sales or use taxes on the gross value
of such produced or manufactured tangible personal property. See Section 111
for a detailed explanation of rules pertaining to contractors who produce or
manufacture tangible personal property which they use or consume in their
contracting activity.
107.2.5.
Purchase of Materials and Supplies by Contractors. - For purposes of the
consumers sales and use taxes, sales of materials or supplies to contractors
for use or consumption in contracting activity are taxable. Except as provided
elsewhere in these regulations, contractors purchasing materials or supplies
must pay consumers sales and service tax at the time of the purchase. Special
rules exist for purchases of materials for use in governmental contracting. See
Section 109 for a detailed explanation of these rules.
107.2.6. Purchase or Lease of Tools or
Equipment. - A contractor is considered the final user or consumer of all
tools, equipment or machinery purchased to perform contracting services.
Therefore, sales of tools, equipment or machinery to contractors to perform
contracting services are subject to consumers sales and use taxes unless the
sale is grandfathered under pre-March 1, 1989 rules contained in Section 108.
Leases of tools, machinery or equipment by a contractor to perform contracting
services are treated as purchases for consumers sales or use taxes.
107.2.6.1. Leases of tools, equipment or
machinery by a contractor are not exempt from consumers sales and use taxes on
the theory that the leased tangible personal property is an ingredient or
component part of the services performed by the contractor. This result applies
regardless of whether the services are taxable or are exempt from the consumers
sales and use taxes because the service is contracting.
107.2.6.2. Nor are leases of tools, equipment
or machinery by a contractor exempt from consumers sales and use taxes on the
theory that the leased tangible personal property is consumed in the production
of the service performed by the contractor, regardless of whether the services
are taxable or are exempt from the consumers sales and use taxes because the
service is contracting.
107.2.7. Purchases of Taxable Services.
107.2.7.1. Taxable services purchased by a
contractor are subject to consumers sales or use taxes, unless such services
are purchased by a contractor exclusively for use in fulfilling a contract
which is grandfathered under pre-March 1, 1989 rules. Tangible personal
property or services that were purchased exempt for use in fulfilling a
contract which is grandfathered under pre-March 1, 1989 rules, that are later
used in a contract other than a grandfathered contract may be partially
taxable. See Section 108.5.2.
107.2.7.2. Generally, taxable services
purchased by a contractor from a subcontractor in fulfillment of the prime
contractors contract resulting in a capital improvement to a building or other
structure or to real property are not subject to consumers sales or use tax.
Subcontractors providing such services to a prime contractor are treated as
contractors and are subject to consumers sales and use tax on their purchases
for use in fulfilling the subcontract. However, subcontractors who are "retail
dealers" within the guidelines set forth in Section 114 of these regulations,
who furnish tangible personal property with incidental installation, remain
retailers and must collect sales tax on these types of sales to prime
contractors.
107.2.7.3. Taxable
services include, but are not limited to, the following:
107.2.7.3.1. The fabrication of tangible
personal property owned by the contractor for incorporation into a building or
other structure or other improvement of real property.
107.2.7.3.2. Installation of wall-to-wall
carpeting or other floor covering by a retail dealer of the carpeting or other
floor covering as part of the sale thereof to the contractor.
107.2.7.3.3. Installing tangible personal
property except where such installation is part of a capital improvement to a
building or other structure or to real property.
107.2.7.3.4. Maintaining, servicing, or
repairing real or tangible personal property owned or leased by the contractor,
except when such activity results in a capital improvement to a building or
structure or to real property.
107.2.7.3.5. Rental of equipment with an
operator.
107.2.7.4.
Examples.
Example 1. Homeowner hires ABC Construction to build an addition to his house. As part of the contract, ABC Construction is to paint not only the new addition to the home, but also to repaint existing adjoining rooms. ABC Construction subcontracts the painting to Rainbow Painting Co. Repainting of existing painted walls is normally a taxable service, while initial painting of new walls or structures is contracting because it constitutes a capital improvement. (See Section 117.16 of these regulations for a detailed explanation of the rules pertaining to painting and papering.) Although ABC Construction is a contractor, it does not pay tax on any of the painting services rendered by Rainbow Painting Co. Although the service provided by Rainbow Painting Co. of painting the existing rooms would by itself normally be a taxable service, it will not be taxable because it is performed as part of the prime contract for new construction, reconstruction, alteration, expansion, or remodeling which itself resulted in a capital improvement. Rainbow Painting Co. would be treated as a contractor and must pay tax on its purchase of paint and other tangible personal property used on the job. Rainbow Painting Co. may wish to obtain a prime contractor's certificate of capital improvement from ABC Construction to document why tax was not charged.
Example 2. Homeowner hires Rainbow Painting Co. to return to paint his upstairs rooms. Rainbow Painting Co. is providing a taxable service and should charge the Homeowner tax on both the paint and the labor. Rainbow Painting Co. may purchase the paint exempt from tax as a purchase for resale. The repainting of the upstairs rooms is a taxable service because it is not a capital improvement nor is it performed on or with new construction, alteration, expansion or remodeling which itself resulted in a capital improvement.
Example 3. Homeowner hires ABC Construction to build an addition to his house. During the construction, ABC Construction's truck breaks down. ABC Construction will pay tax to the repairman on the service work to the truck. The purchase of the service work from the repairman is not exempt from sales and use tax, because it is not a purchase of services from a subcontractor in fulfillment of a prime contract resulting in a capital improvement to a building, structure or real property.
107.2.8. Out-of-State Purchases.
107.2.8.1. The use in West Virginia of any
materials or other tangible personal property or services purchased outside of
West Virginia is taxable, subject to the credit allowed by W. Va. Code
'11-15A-10a
for sales or taxes lawfully paid to another state.
107.2.8.2. Nonresident Contractors should See
regulation Section 110 of these regulations.
107.2.9. Purchase of Materials for Use in
Performance of Contracts Out-of-State.
107.2.9.1. The purchase of materials in this
State for use in erecting a building or other structure or improving real
property of others located in another state are subject to West Virginia
consumers sales and service taxes when such materials are picked up by the
contractor in West Virginia.
107.2.9.2. Such purchases of materials are
not subject to this State's consumers sales and service tax when they are
delivered to an out-of-state job site by:
107.2.9.2.a. The supplier;
107.2.9.2.b. A common carrier; or
107.2.9.2.c. An unregulated carrier hired by
the supplier.
107.2.10. Subcontractor's purchases and
services. - Where a contractor (subcontractor) enters into a contract to
perform specified operations for a second contractor (prime contractor):
107.2.10.1. The purchases of the
subcontractor shall be treated in the same manner as purchases of a prime
contractor.
107.2.10.1.a. Taxable services
purchased by a subcontractor are subject to the consumers sales and use
taxes.
107.2.10.1.b. Purchases of
materials by subcontractors for use in fulfilling contracts with prime
contractors are taxable unless the purchases are exclusively used in fulfilling
contracts with a prime contractor fulfilling a contract with a governmental
entity, who has authority to issue a government contractor's Materials Purchase
exemption certificate or with a prime contractor fulfilling a contract
grandfathered under pre-March 1, 1989 rules contained in Section 108. Tangible
personal property or services that were purchased exempt for use in fulfilling
a contract that is grandfathered under pre-March 1, 1989 rules, that are later
used in a contract other than a grandfathered contract may be partially
taxable. See Section 108.5.2.
107.2.10.1.b.1.
Example. - Owner and Contractor entered into a written contract on February 10,
1989 to construct a building. On June 1, 1989, Contractor enters into a written
contract with Subcontractor to complete a portion of the building. Purchases of
tangible personal property and taxable services directly used by Subcontractor
to complete his work on the building would be exempt from payment of consumers
sales and service tax and use tax because such purchases are in fulfillment of
the contract for contracting executed on February 10, 1989.
107.2.10.3.
Services performed by a subcontractor for a prime contractor in fulfillment of
the prime contractor's contract resulting in a capital improvement to a
building or other structure or to real property are not subject to consumers
sale and use taxes. The subcontractor should maintain adequate records or may
obtain a certificate of capital improvement from the prime contractor to
document that tax was not collected because the services were performed as part
of a prime contract resulting in a capital improvement. (See Section 107.2.11
for information on certificates of capital improvement.) In situations where
the subcontractor is providing services to a prime contractor in fulfillment of
the prime contractor's contract resulting in a capital improvement to a
building, structure or real property, the subcontractor will be treated as a
contractor in relation to his purchases. The subcontractor must then pay tax on
his purchases for use in providing the service to the prime contractor in a
manner similar to other contractors.
107.2.11. Prime Contractor's Certificate of
Capital Improvement. - Services performed by a subcontractor for a prime
contractor in fulfillment of the prime contractor's contract resulting in a
capital improvement to a building or other structure or to real property are
not subject to consumers sales and use taxes.
107.2.11.1. However, sometimes a
subcontractor doing work for a prime contractor may not know whether the prime
contractor's obligation under the contract with his customer is for the
providing of a tax exempt contracting service or a service which is taxable. To
provide greater certainty for a subcontractors, a subcontractor may obtain a
certificate of capital improvement from the contractor.
107.2.11.2. In general, a subcontractor who
accepts a certificate of capital improvement in "good faith" is relieved of
liability for collection or payment of tax upon transactions covered by the
certificate. The question of "good faith" is one of fact and depends upon a
consideration of all the conditions surrounding the transaction. Both the prime
contractor and the subcontractor are presumed to be familiar with the law and
regulations pertinent to the business in which he deals. In order for "good
faith" to be established, the following conditions must be met:
107.2.11.2.a. The certificate must contain no
statement or entry which the subcontractor knows, or has reason to know, if
false or misleading.
107.2.11.2.b.
The certificate must be an officially promulgated certificate form or a
substantial and proper reproduction thereof.
107.2.11.2.c. The certificate must be dated
and executed in accordance with the published instructions, and must be
complete and regular in every respect.
107.2.11.3. A subcontractor may under these
circumstances, accept this "good faith" certificate of capital improvement as a
basis for not collecting consumers sales and service tax with respect to the
transaction from the prime contractor.
107.2.12. Customer-Provided Materials. - If
the contract calls for the customer to provide the materials, the contractor is
not liable for tax on the materials. The customer should pay the consumers
sales and use taxes to the supplier at the time the materials are purchased.
107.3. Definitions. - The following words and terms, when used in these regulations, have the following meaning unless the content in which the term is used clearly indicates that a different meaning is intended:
107.3.1. Alteration. - The term "alteration"
means and is limited to an alteration which is a capital improvement to a
building or structure or to real property.
107.3.2. Building Materials.
107.3.2.1. The term "building materials"
means all tangible personal property, including any device or appliance used by
builders, contractors, or landowners in making improvements, additions,
alterations or repairs to a building or other structure or to real property in
such a way that such tangible personal property becomes a part of the building
or other structure or the realty.
107.3.2.2. A device or appliance becomes a
fixture and a part of the building or other structure or the real property to
which it is connected when it is built into or is attached to the property in
such a way that its removal would substantially damage or deface such
property.
107.3.2.3. Where the
removal of the device or appliance would not substantially damage or deface the
structure to which it is connected the following factors shall be considered:
107.3.2.3.a. Actual Connection with or
Attachment. - To become a part of a building or structure or real property, the
device the tangible personal property must have some physical connections such
as: by bolts, screws, nails, cement, piping, or cable; by contact, where the
tangible personal property is necessary to make complete or useable something
which is a building or structure or real property; or by attachment to other
tangible personal property which has become a part of a building or structure
or real property.
107.3.2.3.b.
Appropriateness to the Use or Purpose of the Building or Structure or Real
Property to Which Connected. - The use or purpose of the tangible personal
property must become an element of the use or purpose of the building or
structure or real property to which it is connected.
107.3.2.4. This rule is not intended to apply
to cook stoves, refrigerators, washing machines, and portable heaters, acquired
for the personal use of householders or tenants which may be removed without
material damage to the buildings in which they are used.
107.3.3. Capital Improvement.
107.3.3.1. The term "capital improvement"
means an improvement that is affixed to or attached to and becomes a part of a
building or structure or the real property or which adds utility to real
property or any part thereof and that lasts, or is intended to be relatively
permanent. As used herein, the term "relatively permanent" means lasting at
least twelve (12) months or longer in duration without the necessity for
regularly scheduled recurring service to maintain such capital improvement.
"Regular recurring service" means regularly scheduled intervals of less than
one (1) year. As used herein, the term "adds utility" means substantially
adding to the value of the building or structure or real property or
appreciably prolonging or extending the useful life of the building, or
structure or real property.
107.3.3.2. The term "capital improvement"
includes the construction, alteration, repair, decoration or improvement of a
new or existing building or structure, or any part thereof, and the alteration,
improvement or development of real property, which:
107.3.3.2.a. adds utility to the building or
structure or real property or any part thereof by substantially adding to the
value of the building or structure or real property or appreciably prolonging
or extending the useful life of the building or structure or real property,
and
107.3.3.2.b. becomes part of
the building or structure or real property or is permanently affixed to or
attached to the building or structure or real property so that its removal
would cause material damage to the article being removed or to the building or
structure or real property itself, and
107.3.3.2.c. is intended to become a
permanent installation or to remain for an indefinite period of time.
107.3.3.3. The following
examples illustrate the rule outlined in Section 107.3.3.2:
Example 1. A homeowner enters into a contract with Roofing Company to replace the roof on his house with a new roof guaranteed to last twenty years. This is a capital improvement because the new roof appreciably extends the useful life of the house and once attached, the new roof becomes part of the house.
Example 2. A homeowner entered into a contract with Construction Company to build a new garage on the homeowner's property. This is a capital improvement because the new garage substantially adds to the value of the real property, is permanently attached to the real property, adds utility to the real property and is intended to be a permanent installation.
Example 3. A homeowner enters into a contract with Pools R Fun Construction Company to construct an in-ground pool complete with a deck around the pool and appropriate fencing. This is a capital improvement because it adds utility to the real property and is intended to be a permanent installation.
107.3.3.4.
The term "capital improvement" does not include:
107.3.3.4.a. A contract for the sale and
installation of tangible personal property which, when installed, remains
tangible personal property, or which, when installed, does not add utility to
the building or structure or the real property; or which, when installed, adds
utility to the building or structure or to real property but is not intended to
remain there for an indefinite period of time; or
107.3.3.4.b. The sale of tangible personal
property to a customer if under the contract the contractor who sells the
tangible personal property is not responsible for the installation of the
tangible personal property furnished and does not arrange for its installation.
107.3.3.5. Example: John
Doe enters into an agreement with a supplier to supply all materials necessary
for the framing of a home. He enters into a separate and distinct agreement
with a contractor for installation of all the materials purchased from the
supplier. John Doe must pay consumers sales and service tax on all materials
purchased from the supplier because the purchase is of tangible personal
property and not of a capital improvement. The installation of the materials
results in a capital improvement to real property. However, the installation
service is contracting which is exempt from consumers sales and service
tax.
107.3.3.6. Example: John Doe
hires ACE Roofing Company to replace 10 asphalt shingles on the roof of his
home. This is not a capital improvement to a building or structure or to real
property.
107.3.4.
Contract.
107.3.4.1. The term "contract"
means and includes any agreement (written or oral), whether on a lump sum, time
and material, cost plus, or other basis, to:
107.3.4.1.a. Erect, construct, alter, repair,
decorate or improve any building or other structure that results in a capital
improvement thereto, or project, development, or
107.3.4.1.b. Alter, improve or develop real
property that results in a capital improvement thereto, or
107.3.4.1.c. Erect, construct, alter, repair,
decorate or improve any fixed works such as waterways, electric generating
plants, electrical transmission or distribution lines, telephone or telegraph
lines, railroads, highways, airports, sewers, sewage disposal plants or
systems, waterworks or water distribution systems, gas transmission or
distribution systems, pipelines and other systems for the transmission of any
other liquid or gas.
107.3.4.1.d.
Pave surfaces separately or in connection with any other capital improvement to
building or structure or other improvement to real property.
107.3.4.1.e. Furnish and install the property
becoming a part of a central heating, air conditioning, or electrical system of
a building or other structure, and furnish and install wires, ducts, pipes,
vents, and other conduit imbedded in or securely affixed to the land or a
structure thereof.
107.3.4.1.f.
Demolish an existing building or structure or improvement to real property.
107.3.4.2. The term
"contract" does not include:
107.3.4.2.a. A
contract solely for the sale or for the sale and installation of tangible
personal property such as free standing industrial or commercial machinery and
equipment which remains tangible personal property after its installation;
or
107.3.4.2.b. The furnishing of
tangible personal property under what is otherwise a construction contract if
the person furnishing the property is not responsible under the contract for
the final affixation or installation of the property furnished.
107.3.5.
Contracting.
107.3.5.1. Beginning July 1,
1989, "contracting" is defined to mean the furnishing of work, or both
materials and work, for another by a contractor in fulfillment of a contract
for the construction, alteration, repair, decoration or improvement of a new or
existing building or structure (or any part of a building or structure), or for
the removal or demolition of a building or structure (or any part of a building
or structure), or for the alteration, improvement, or development of real
property, but only to the extent such activity results in a capital improvement
to the building, structure or real property, as defined in Section 107.3.3 of
these regulations.
107.3.5.2.
Beginning July 1, 1989, "contracting" does not include the furnishing of work,
or both materials and work in the nature of hookup, connection, installation or
other services if such service is incidental to the retail sale of tangible
personal property from the service provider's inventory. In addition, the
hookup, connection or installation must be performed by the seller or performed
in accordance with arrangements made by the seller. Examples of transactions
that are excluded from the definition of contracting pursuant hereto include,
but are not limited to:
107.3.5.2.a. The sale
and installation of wall-to-wall carpeting.
107.3.5.2.b. The sale, hookup, and the
connection of:
mobile homes
window air conditioning units
dishwashers (residential)
clothing washing machines or dryers (residential)
other household appliances
drapery rods
window shades
venetian blinds
canvas awnings
free standing industrial equipment
free standing commercial equipment
107.3.6.
Contractor. - The term contractor means any individual partnership, corporation
or other person engaged in the business of contracting for others. The phrase
"person engaged in business" as used herein means persons who offer a
contracting service to the public or to others for a consideration, whether
such person offers the contracting service continuously, part-time, seasonally
or for short periods. A contractor may be a prime contractor, subcontractor,
general contractor or specialty contractor.
107.3.7. Construction Equipment. - The term
"construction equipment" means any vehicle, machine, tool, implement or other
device used by a contractor in erecting buildings or structures for others, or
building on, or otherwise improving, altering, or repairing property for
others, which does not become a physical component part of the property upon
which such work is performed, and which is not necessarily consumed in the
performance of such work. Construction equipment includes, but is not limited
to, grading, lifting and excavating vehicles, compressors, scaffolds, forms,
hand tools and ladders.
107.3.8.
Construction Manager. - The term "construction manager" means a person who
enters into an agreement on a fee basis to act between the owner of the project
and the various contractors who are hired and paid directly by the owner. As to
such project, a construction manager is neither a prime contractor, a general
contractor, a specialty contractor, a subcontractor nor any other kind of
contractor.
107.3.9. Construction
Materials. - The term "construction materials" means items of tangible personal
property purchased by a contractor for incorporation into property as a
physical component part of such property. A non-exclusive list of construction
materials includes:
Asphalt
Bricks
Builder's hardware
Caulking Material
Cement
Conduit
Doors
Ducts
Electric wiring and connections
Flooring
Glass
Gravel
Insulation
Lath
Lead
Lime
Linoleum
Lumber
Macadam
Millwork
Mortar
Oil Paint
Paper
Piping, valves, and pipe fittings
Plaster Power poles, towers, and lines
Putty
Reinforcing mesh
Roofing
Sand
Sheetmetal
Steel
Stone
Stucco
Tile
Wall coping
Wallboard
Wallpaper
Wall-to-wall carpeting (when affixed to the floor)
Weather stripping
Windows
Window Screens
Wire netting and screen
Wood preserver
107.3.10. Construction Supplies. - The term
"construction supplies" means items of tangible personal property consumed in
the fulfillment of a contract, which items do not become a physical component
part of the building or structure or real property upon which work is
performed. Supplies include, but are not limited to, lubricants, cleaning
compounds, polyethylene covers, rock salt and rope.
107.3.11. Decoration. - The term "decoration"
means and is limited to a decoration which is a capital improvement to a
building or structure or to real property.
107.3.12. Equipment. - The term "equipment"
as used in this rule means any vehicle, machine, tool, implement or other
device used by a contractor in erecting structures for others or
reconstructing, altering, expanding or remodeling property of others which does
not become a physical component part of the property upon which work is
performed, and which is not necessarily consumed in the performance of such
work. "Equipment" includes, but is not limited to items such as:
Compressors
Drill presses
Electric generators
Forms
Hand tools
Lathes
Replacement parts for equipment
Scaffolds
Tools
Grading, lifting and excavating vehicles
107.3.13. Fabricator. - The term "fabricator"
means any person engaged in any business or activity involving manufacturing,
processing or assembling property for sale or commercial use which when
installed ordinarily becomes a physical component of a building or other
structure or real property.
107.3.14. Fixtures. - The term "fixtures"
means and includes items which are accessories to a building or other structure
which do not lose their identity as accessories when installed.
107.3.14.1. For an item to be a fixture, the
items must be attached in some way to the real property; it must be adapted to
the use to which the real property is being put at the time the item is
attached thereto; and it must be the intention of the party placing it there to
make it a permanent part of the real property or to leave it there for an
indefinite period of time.
107.3.14.2. A nonexclusive list of typical
items regarded as fixtures includes:
Air conditioning units
Awnings
Burglar alarm and fire alarm fixtures
Cabinets, counters, and lockers (prefabricated)
Electric generators (affixed to and accessory to a building, structure or fixed works
Elevators, hoists, and conveying
Furnaces, boilers, and heating units
Lighting fixtures
Plumbing fixtures
Refrigeration units
Signs
Telephone switchboards and instruments
Television antennas
Transformers and switchgear
Vault doors and equipment
Venetian blinds
107.3.15. Freestanding Industrial or
Commercial Equipment. - The term "freestanding industrial or commercial
equipment" means equipment which is suitable for and is in fact used for
commercial or industrial purposes and which is not connected or attached to a
building or structure or real property; can easily be removed without doing
substantial damage to the building or structure or real property; and is not
essential to the basic use or purpose of the building or structure or real
property.
107.3.15.1. Actual Connection with
or Attachment to. - To become a part of a building or structure or real
property, the equipment must have some physical connection such as by bolts,
screws, nails, cement, piping, or cable; by contact, where the equipment is
necessary to make complete or usable a building or structure or real property;
or by attachment to another item of machinery or equipment which has become a
part of a building or structure or real property.
107.3.15.2. A refrigerator sold to a
restaurant for use in its kitchen is delivered by the seller and installed by
plugging it into an existing electrical outlet or by wiring it directly into
the existing electrical system. Under these facts, the refrigerator is
freestanding commercial equipment.
107.3.16. General Contractor. - The term
"general contractor" means a person who enters into an agreement, either
written or oral, with the owner of a project to perform contracting services. A
natural person may not contract with himself or a partnership in which he is a
partner.
107.3.17. Improvement.-
The term "improvement" means and is limited to improvements which are capital
improvements to a building or structure or to real property. This term
includes, but is not limited to, the following:
107.3.17.1. The erection, construction,
alteration, repair, decoration or improvement of a building or other structure,
project, or development or other permanent improvement on, under or to real
property that results in a capital improvement.
107.3.17.2. Furnishing and installing
property becoming a part of any building or other structure, project, or
development or other capital improvement on or to the realty, including
tangible personal property that after installation becomes a structure or
becomes real property because it is embedded in a permanently affixed to the
land or to a structure constituting realty; or
107.3.17.3. Altering the land surface of real
property by creating roads, earthen dams or stock lands. (Mining and timbering
operations or reclamation, waste disposal and environmental activities
associated with the production of natural resources are treated as the
production of natural resources rather than as contracting for purposes of the
consumers sales and use taxes.)
107.3.17.4. The intention of the purchaser
determines whether a "portable" building other than a mobile home constitutes
improvement to realty as a fixture or is tangible personal property. The
primary criterion is the mode of annexation. If the building is plumbed,
electrified, anchored, or attached to an existing structure in connection with
the sale, it is an improvement to realty. If none of these conditions exist,
the building is personal property, even though it might be placed on a
particular foundation.
107.3.17.5.
A contract for the improvement to realty does not include:
107.3.17.5.a. A contract solely for the sale
and installation of freestanding tangible personal property, including a
contract to furnish and install freestanding machinery and equipment or other
tangible personal property not essential to the building or structure nor
intended to become a part of the realty, and if temporarily or incidentally
attached, is readily removable without substantial damage to the tangible
personal property or to the building or structure or real property.
107.3.17.5.b. The furnishing of tangible
personal property if the person furnishing the property is not responsible for
the final affixation or installation of the property; or
107.3.17.5.c. The furnishing of tangible
personal property if the person furnishing the property is responsible only for
supervision or warranty of installation and does not have the contractual
responsibilities of installation.
107.3.18. Lump Sum Contract. - The term "lump
sum contract" means a contract under which the contractor for a stated lump sum
agrees to furnish and install materials or fixtures, or both. A lump sum
contract does not become a time and materials contract when the amounts
attributable to materials, fixtures, labor, or tax are separately stated in the
invoice.
107.3.19. Machinery and
Equipment. - The term "machinery and equipment" means and includes property
intended to be used in the production, manufacturing or processing of tangible
personal property, the performance of services or for other purposes (e.g.,
research, testing, experimentation) not essential to the fixed works, building,
or structure itself, but which property incidentally may, on account of its
nature, be attached to the realty without losing its identity as a particular
piece of machinery or equipment and, if attached, is readily removable without
damage to the unit or to the realty. "Machinery and equipment" does not include
junction boxes, switches, conduit, wiring, or valves, pipes, and tubing
incorporated into fixed works, buildings, or other structures, whether or not
such items are used solely or partially in connection with the operation of
machinery and equipment, nor does it include items of tangible personal
property such as power shovels, cranes, trucks, and hand or power tools used to
perform the construction contract.
107.3.20. Materials. - The term "materials"
means and includes building and construction materials and components,
machinery and equipment, supplies and other tangible personal property which
are directly used or consumed by a contractor in fulfilling a contract for the
provision of a contracting service, regardless of whether such property is
incorporated into, attached to, affixed to or set upon a building or structure
or real property by a contractor in the performance of a contract.
107.3.21. Nonresident Contractor. - The term
"nonresident contractor" means any contractor who is not a resident contractor
as defined in Section 107.3.24.
107.3.22. Prime Contractor. - The term "prime
contractor" means a person who enters into an agreement, either written or
oral, with the owner of a project to perform contracting services. A natural
person may not contract with himself or a partnership in which he is a
partner.
107.3.23. Repair. - The
term "repair" means and is limited to repairs which are capital improvements to
a building or structure or to real property. See Sections 115 and 116 for a
detailed explanation of rules relating to repairs on tangible personal
property, buildings, structures, or real property.
107.3.23.1. A repair which adds utility by
substantially adding to the value of a building or structure or real property
or by appreciably prolonging the original useful life of a building, structure
or real property is a capital improvement if:
107.3.23.1.a. it becomes a part of the
building or structure or real property, or
107.3.23.1.b. it is permanently affixed to or
attached to a building or structure or real property so that removal of the
repair would cause material damage to the materials being removed or to the
building or structure or real property itself, or
107.3.23.1.c. it is intended to become a
permanent installation or to remain for an indefinite period of
time.
107.3.23.2. A
repair which neither adds to the value of a building or structure or real
property nor appreciably prolongs its original life is not a capital
improvement. A repair which is not a capital improvement is subject to
consumers sales and service tax and tax must be collected from the
customer.
107.3.24.
Resident Contractor. - A "resident contractor" means any contractor who has a
bona fide place of business within the State of West Virginia or is engaged in
any manner in carrying on any employment, trade, business, or profession in
this State regardless of whether incorporated in this State or in another state
or whether the resident contractor may have a place of business or conduct any
employment, trade, business or profession outside this State.
107.3.25. Specialty Contractor. - The term
"specialty contractor" means a person whose business of contracting is limited
to specialty areas such as heating, air conditioning, plumbing and electric
wiring, etc.
107.3.26. Structure.-
The term "structure" includes, but is not limited to everything built up or
composed of parts joined together in some definite manner and attached or
affixed to real property, or which adds utility to real property or to any part
thereof, or which adds utility to a particular parcel of property and is
intended to remain there for an indefinite period of time. Nonexclusive
examples of structures include: buildings; roads, whether paved or otherwise;
dikes; drainage ditches; ponds; fences; and sidewalks, etc.
107.3.27. Subcontractor. - The term
"subcontractor" means a person who enters into an agreement with a prime
contractor, a general contractor, or with another subcontractor to perform
work, or provide both materials and work in fulfillment of a contract for
contracting services.
107.3.28.
Supplies. - The term "supplies" means items of tangible personal property
consumed in the fulfillment of a contract, which items do not become a physical
component part of the property upon which the work is performed. Supplies
include, but are not limited to, lubricants, cleaning compounds, polyethylene
covers and ropes.
107.3.29.
Tangible Personal Property. - The term "tangible personal property" means
personal property which may be seen, weighed, measured, felt or touched, or is
in any other manner perceptible to the senses, and includes tangible goods,
wares and merchandise.
107.3.30.
Time and Materials Contract. - The term "time and materials contract" means a
contract under which the contractor agrees to furnish and install materials or
fixtures, or both, and which sets forth separately a charge for the materials
or fixtures and a charge for their installation or fabrication.
107.4. Tax on Contractor Not to be Passed on as Tax.
107.4.1. A
contractor is not allowed to pass the consumers sales or use tax on to his
customer as a tax. A contractor may take the amount of these taxes into
consideration when preparing his bid.
107.4.2. A contractor, when bidding on a
contract, should anticipate that consumers sales or use taxes will increase the
cost of materials and taxable services by the amount of the tax. Necessary
allowance should be made in figuring the bid, because the contractor will be
held responsible for paying the tax on tangible personal property and the
results of taxable services used or consumed in the business of contracting
regardless. The tax may not be identified as a separate item in the formal bid
because the contractor cannot charge consumers sales and service tax.
107.5. Contractor's Records.
107.5.1. Each contractor shall maintain
adequate records to support the use of materials purchased with a Material
Purchase certificate and to show the disposition of all materials purchased
with such a certificate.
107.5.2.
In the case of an audit, the auditor will examine a copy of the agreement
between the contractor and his customer for a description of the work
performed. Because the law presumes that all transactions are taxable, the
contractor must maintain adequate records to justify why consumers sales and
service tax was not collected from his customer.
107.6. Contractor's Liability.
107.6.1. Generally a contractor must pay
consumers sales or use tax on the following:
107.6.1.1. All of the materials, equipment,
tools, and supplies which he uses or consumes in the operation of his business;
and
107.6.1.2. All materials
consumed by him in the fulfillment of a contract for a capital improvement to a
building or other structure or to real property except such property as falls
within one of the specific exemptions explained in Section 107.6.2.
107.6.2. Prior to October 1, 1990,
contractors could claim immunity or exemption from the consumers sales and
service tax or use taxes on materials purchased and used or consumed in
connection with contracts with the federal government, or with the State of
West Virginia, its political subdivisions and corporate entities created by the
West Virginia Legislature, provided they have applied for and been granted
authority to use a Material Purchase Certificate. As of October 1, 1990, the
exemption for materials purchased by contractors for use in governmental
contracts was generally repealed and the use of material purchase certificates
became very limited. See Section 109 of these regulations for detailed
explanation of the transition rules pertaining to governmental contracting.
Contractors may claim immunity or exemption from the sales or use taxes on
account of purchases directly used in pre-March 1, 1989 contracts. Transition
rules for contracts grandfathered under pre-March 1, 1989 rules are contained
in Section 108 of these regulations. Tangible personal property or services
that were purchased exempt for use in fulfilling a contract which is
grandfathered under pre-March 1, 1989 rules that are later used in a contract
other than a grandfathered contract may be partially taxable. See Section
108.5.2.
107.6.3. If a vendor of a
contractor doing work in West Virginia does not collect the West Virginia tax
from the contractor, the contractor shall be liable for payment of the use tax
on his purchases of tangible personal property and taxable services from the
vendor.
107.7. Sales to Contractors.
107.7.1. Vendors who sell
tangible personal property to contractors are required to collect consumers
sales and service tax from such contractors based upon the gross proceeds from
such sales unless they, in good faith, receive from the contractor a direct pay
permit number or a material purchase certificate. Purchase discounts are not
part of the sales price and are not part of the base for computing consumer
sales and use taxes. (Note, there is a distinction between a purchase discount
and a discount for prompt payment. The first is an allowable deduction where as
the later is not an allowable deduction.) Materials purchased out-of-state for
use in West Virginia are subject to the West Virginia use tax which is payable
in the quarter the materials are delivered into this State.
Disclaimer: These regulations may not be the most recent version. West Virginia may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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