Each year the Virginia Legislature passes changes to the Virginia Tax Code that impacts residents and those doing business in Virginia. While many of the changes can seem mundane or minor, there are two that will have a significant impact on two segments of Virginia Business, automotive service centers and retailers and contractors selling and installing tangible personal property. Both will likely require changes to POS retail and accounting systems in order to administer properly.
Retail Sales and Use Tax on Consuming Contractors:
House Bill 1890 and Senate Bill 1308 repeal a provision requiring dealers who make both retail sales and also install fences, venetian blinds, window shades, awnings, storm windows and doors, locks and locking devices, floor coverings, cabinets, countertops, kitchen equipment, window air conditioning units or other like or comparable items, to collect sales tax from their customers on such sales. Effective July 1, 2017, such sales will be deemed an improvement to real property, therefore not subject to sales tax to the purchaser (real property owner). Dealers who sell and install items will be required to pay sales or use tax on their purchases of such goods and supplies, as they are considered the consumer.
This change will have a significant impact on price quotes as the quote will need to include the cost of sales tax, where as the impact of sales tax would have been stated separately, if at all under prior law. Sellers will want to be sure to advise their potential customers of this change to help ensure purchasers are making apples to apples comparison of quotes.
Retail Sales and Use Tax on Automotive Repair Supplies:
House Bill 1518 requires that Retail Sales and Use Tax be collected by automobile repair business on separately stated charges to their customers for supplies used during the repairs, whether or not title or possession of the supplies passes to the customer. This act also allows automobile repairers to purchase supplies exempt from the tax as sales for resale. Examples of supplies used where title does not pass to the customer are rags, cleaning supplies, absorbing materials such as kitty litter and similar items. Prior to July 1, sales or use tax was paid by the auto shop upon their purchase or use of such items, and sales to customers were not subject to Virginia Sales Tax. Automotive Repair Shops will have to make adjustments in their POS accounting systems and purchasing systems to ensure sales tax is charged correctly to the purchaser and ensure that they are not paying sales or use tax upon purchase. Adjustments to avoid double taxation can be made when preparing monthly sales and use tax returns. Taxpayers will need to keep careful records during this period of transition.