This Technical Assistance Advisory is issued in reply to a request for a Technical Assistance Advisory, as provided in W. Va. Code §11-10-5r, and is based upon facts submitted in that letter in support of the said request.

FACTS

Company A is a prime contractor for the construction and renovation of a large structure, which entails sizeable engineering and materials expenditures and specialized construction expertise.

Company B is a subcontractor for Company A. Company B has entered into a subcontract with Company A to furnish and install several large fabricated steel components in the large structure which is being constructed and renovated by Company A. The large fabricated steel components are to be fabricated by Company C in a facility located outside of West Virginia.

Company C, the entity requesting this Technical Assistance Advisory, is a steel fabricating company located outside the State of West Virginia.

Company C entered into a contract with Company B for Company C to fabricate several large steel components and deliver each large fabricated steel component to Company B at the construction site, FOB the construction site. Under the contract, Company C has no responsibility for any installation of the large fabricated steel components at the construction site. Company C has the responsibility to store the large fabricated steel components at or near the construction site for a reasonable time. It appears that the large fabricated steel components may be so stored without cost to the vendee for up to ten days, after which time, Company B becomes liable for the payment of demurrage charges.

All fabrication of the large fabricated steel components occurs outside of West Virginia. Company C engages in no business or other activity in West Virginia except for the delivery of the fabricated steel components.

DISCUSSION AND ANALYSIS

Given these facts, Company C requests determinations from the West Virginia Department of Tax and Revenue in response to the following questions:

QUESTION 1:

1. Is Company C engaged in contracting for purposes of the West Virginia consumers sales and service tax and the West Virginia Use Tax when it furnishes both materials and work as a subcontractor in the fulfillment of the contract for the construction of a new structure, being the large fabricated steel component?

RESPONSE:

No. Company C is not engaged in the activity of contracting. Company C is a fabricator of large fabricated steel components which are to be installed into a structure by the construction subcontractor, Company B. Company C is fabricating and supplying building materials to the subcontractor, albeit a large, very specialized fabricated steel component. The fabrication and delivery of that component is conceptually the same as the manufacture and delivery of a central heating furnace which is delivered to a construction site for installation into a new office building or home which is under construction. Just as a furnace manufacturer is not a building contractor, so Company C is not a construction contractor.

QUESTION 2:

2. Would the construction of each fabricated steel component at Company C's out of State fabrication site give rise to any liability to the State of West Virginia for West Virginia consumers sales and service tax?

RESPONSE:

No. It appears that Company C is fabricating the steel components outside of the State of West Virginia, and Company C's only activity in West Virginia will be to deliver and temporarily store the fabricated steel components in West Virginia at the construction site. Title to the fabricated steel components will remain in Company C during transport and during temporary storage of the components in West Virginia, until the subcontractor, Company B, takes custody of the components.

QUESTION 3:

3. Assuming that your answer to Question No. 1 is "yes", may Company C deliver its contracting in the form of several fabricated steel components to its contractor in West Virginia without giving rise to any liability to Company C under the West Virginia consumers sales and service tax?

RESPONSE:

The assumption which prefaces this question fails. The answer to Question 1 is not "yes." Notwithstanding this fact, Company C would not be liable for the West Virginia consumers sales and service tax upon delivery of its fabricated steel components into West Virginia. Nor would Company C be required to collect the West Virginia consumers sales and service tax or the West Virginia use tax from Company B upon delivery of the fabricated steel components to Company B in West Virginia, unless Company C were engaged in activity in West Virginia beyond the delivery of the fabricated steel components in West Virginia, or otherwise had some nexus with West Virginia.

For example: If Company C places an engineer or other employee in West Virginia to provide consultation at the construction site to Company B or others on the use, installation or operation of the fabricated steel components or the structure into which they are to be incorporated, or if a Company C employee enters into West Virginia to oversee, prosecute or engage in any business activity for Company C in West Virginia except the delivery of the fabricated steel components, and appropriate care and security of the components during delivery and temporary storage, then Company C may create business nexus with the State of West Virginia sufficient to give rise to a duty to collect the West Virginia consumers sales and service tax or use tax from the vendee, Company B

QUESTION 4:

4. Assuming that your answer to Question No. 1 is "yes", may Company C deliver its fabricated steel components to its contractor without giving rise to any liability to Company C under the West Virginia use Tax?

RESPONSE:

The assumption which prefaces this question fails. The answer to Question 1 is not "yes." Notwithstanding this fact, Company C would not be liable for the West Virginia use tax upon delivery of its fabricated steel components into West Virginia. As discussed in our response to Question 3 above, Company C would also not be liable for the collection of the West Virginia use tax from its vendee unless Company C were engaged in activity in West Virginia beyond the delivery of the fabricated steel components in West Virginia, or otherwise had some nexus with West Virginia.

QUESTION 5:

5. Assuming that your answer to Question No. 1 is "yes", does the receipt of contracting from Company C in the form of the fabricated steel components give rise to any liability on the part of Company B for any West Virginia consumers sales and service tax?

RESPONSE:

The assumption which prefaces this question fails. The answer to Question 1 is not "yes." Company B would be liable for the West Virginia use tax, and not for the West Virginia consumers sales and service tax, upon delivery, with transfer of title, of the fabricated steel components to Company B at the construction site.

QUESTION 6:

6. Assuming that your answer to Question No. 1 is "yes", does the receipt of contracting from Company C in the form of the fabricated steel components give rise to any liability on the part of Company B for any West Virginia use tax?

RESPONSE:

The assumption which prefaces this question fails. The answer to Question 1 is not "yes." Company B would be liable for the West Virginia use tax upon delivery, with transfer of title of the fabricated steel components to Company B at the construction site.

Declaration of Precedential Value. -- Under W. Va. Code §11-10-5r(b), a Technical Assistance Advisory has no precedential value, except to the taxpayer who requests the advisory, unless the Tax Commissioner specifically states that it has precedential value. This Technical Assistance Advisory is declared to have precedential value.

The provisions of this Technical Assistance Advisory shall apply to any audit or review henceforth undertaken and to any assessment henceforth issued by the Department of Tax and Revenue.

Publication. -- Under W. Va. Code §11-10-5r(e), the Tax Commissioner is required to release Technical Assistance Advisories to the public after they are modified to delete identifying characteristics.

 

Issued: November 28, 1994

James H. Paige III Secretary/Tax Commissioner