Virginia Law

A. Definitions. The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:

"Add-ons" mean additional obligations subsequent to the execution of the original contract or order, including modifications to contracts or orders.

"Classified contract" means a contract in which the contractor or its employees must have access to classified information during contract performance.

"Classified contract agent" means an auditor employed by the department who has been authorized to review secure or classified contracts.

"Contractor" means an entity that contracts to perform all or a portion of a contract for a government entity. For purposes of this section, the term contractor shall include a prime contractor, contractor, subcontractor, or any other term conveying the same obligation, whether incurred by contracting directly with the government entity or with another contractor, to perform the work under the contract.

"Department" means the Virginia Department of Taxation.

"Government" or "government entity" means the United States government, the Commonwealth of Virginia, and any agency, board, commission, political subdivision or instrumentality of the Commonwealth of Virginia. The terms "government" and "government entity" do not include any foreign governments, other state governments of the United States, or any political subdivisions of such other state governments.

"Indeterminate purpose contract" means a contract in which the sale of the tangible personal property or the provision of services is dependent upon some future action of the purchaser for which the exact amount of time and quantity cannot be determined at the time the contract is entered into.

"Mixed contract" means a contract between a government entity and a contractor that involves the contractor both rendering a service and providing tangible personal property to the government entity under that contract.

"Order" means a specific task assigned to a contractor pursuant to a contract with a government entity. For purposes of this regulation, the term "order" shall include, but not be limited to, task orders, delivery orders, work orders, contract line item numbers (CLINs), and shall also include orders issued under a subcontract for fulfillment of work or products required under a general contractor's prime contract with the government and add-ons to existing contracts or orders. The term "order" shall not include a vendor order issued by a contractor to a vendor.

"Purchase for resale" means any tangible personal property or taxable service purchased by a government contractor with the intent of resale to a government agency and that is not used by the contractor for any purpose that is inconsistent with holding the property for resale to the government. "Purchase for resale" also includes tangible personal property to be incorporated into a manufactured product, that will be sold to the government entity.

"Real property contract" means a contract between a contractor and a government entity in which the contractor contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate, or fixtures thereon, including highways, and in connection therewith, to furnish tangible personal property.

"Statement of work" means a description of work that must be completed in order to fulfill a contractual obligation. A "statement of work" may be for the provision of a service or the transfer of tangible personal property, or both. A "statement of work" may be associated with the overall purpose of a government contract, or may be a separate and distinct subordinate activity under the overall purpose of a contract. A statement of work may be included in a contract, or in an order, as defined herein.

"Subcontractor" means a contractor who contracts to perform all or a portion of a general or prime contractor's contract with a government entity. For purposes of this regulation, a subcontractor shall be deemed as such regardless of how far removed the contractor is from the general or prime contractor. A subcontractor may be referred to by any other term that conveys the relationship at any tier between the contractor and the entity to perform the work under the subcontract.

"True object test" means the method of determining whether a particular transaction that involves both the rendering of a service and the provision of tangible personal property constitutes the sale of a service or the sale of tangible personal property.

"Vendor" means a person who is not a contractor or subcontractor, and who transfers tangible personal property by sale.

"Vendor order" means a commercial document or form completed by a contractor and issued to a vendor requesting that the vendor provide certain tangible personal property only. For examples of vendor orders, see subsection E of this section.

B. Treatment of mixed government contracts, contracts solely for the provision of services or solely for the provision of tangible personal property, and real property contracts. Where a transaction between a government entity and a contractor involves both the rendering of a service and the provision of tangible personal property, the transaction is deemed a mixed transaction, and the true object of the transaction must be examined to determine the taxability of the transaction.

However, where a transaction between a government entity and a contractor is solely for the provision of tangible personal property, solely for the provision of services, or constitutes a real property contract, application of the true object test is not necessary.

Example 1: Contractor A enters into a transaction with the federal government under which it must furnish personnel to staff a federal government agency's human resources department. Under the terms of the contract, Contractor A is not required to provide any equipment or supplies to the government. Because the transaction is purely for the provision of services, application of the true object test is not necessary. Contractor A will be deemed the taxable user and consumer of all tangible personal property used in performing its services.

Example 2: Contractor B enters into a transaction to purchase a computer system for the federal government. The terms of the contract also require that the contractor develop and oversee training, such that outside assistance will not be required to assist government personnel in the operation and maintenance of the computer system. Because the transaction is a mixed transaction requiring Contractor B to provide services (training) as well as tangible personal property (the computer system), application of the true object test is necessary. The true object of the transaction is the provision of a computer system, thus tangible personal property purchased or leased pursuant to this contract can be purchased for resale exempt of the retail sales and use tax.

C. True object test; generally. In order to determine whether a particular transaction that involves both the rendering of a service and the provision of tangible personal property constitutes a sale of a service or of tangible personal property, the true object of the transaction must be examined. The appropriate tax treatment of purchases of tangible personal property by persons who contract with the government or its political subdivisions is based upon whether the transaction is for the sale of tangible personal property (e.g., a computerized data retrieval system) or for the provision of an exempt service (e.g., real property facilities management). If a transaction is for the sale of tangible personal property, a contractor may purchase the tangible personal property exempt of the tax using a resale exemption certificate, Form ST-10. The tangible personal property may be resold to the government exempt of the tax.

However, if a transaction is for the provision of services, the contractor is deemed to be the taxable user and consumer of all tangible personal property used in performing its services, even though title to the property provided may pass to the government or the contractor may be fully and directly reimbursed by the government or both.

D. Tax treatment of government contracts executed prior to July 1, 2006. With respect to mixed contracts between government entities and contractors executed prior to July 1, 2006, the true object test shall be applied to the underlying contract without regard to the individual orders issued prior to July 1, 2006, in furtherance of the overall contract.

Example 3: Contractor A enters into an agreement with the federal government to modernize a signal acquisition system to address advances in signal interception and collection technology through the modification and customization of existing software. The contract is executed on January 1, 2004. Pursuant to the contract, the federal government issues orders specifying particular jobs under the umbrella of the contract. One order executed on January 10, 2004, requires Contractor A to provide support for the modification of government-owned software once it is customized. Using technical information that describes target signals, the contractor is required to deliver code modification, test the modification, and to make further modifications as required. A second order executed on January 15, 2004, requires Contractor A to acquire a computer workstation on which the modified software will be installed. Because both the contract and orders were executed prior to July 1, 2006, the true object test is applied to the underlying contract, without regard to the individual orders issued by the federal government in furtherance of the underlying contract. The true object of the contract is the provision of services related to a signal acquisition system, as the overall objective of the federal government is for Contractor A to use its expertise to address advances in signal interception and collection technology through the modification and customization of existing software. Contractor A is deemed the taxable user and consumer of all tangible personal property used in fulfilling the terms of the contract.

Example 4: Contractor B enters into a contract with the Commonwealth of Virginia on January 5, 2000, to implement a complete computer-based Traffic Signal Management System, consisting of a digital, computer based, networked, central system providing direct communications with all intersections in the project area. A separate order executed on March 1, 2000, and issued pursuant to the contract requires Contractor B to furnish and integrate the complete computerized system, including all necessary communications equipment not provided by the local telephone company, central computers and peripherals, software, and other incidentals required to properly operate the system. An order executed on March 1, 2000, requires Contractor B to provide systems documentation and end-user training and support. Because the contracts and orders were entered into prior to July 1, 2006, the true object test is applied to the underlying contract, without regard to the individual orders issued in furtherance of the contract. Although Contractor B is contractually required to perform systems integration, end-user training, and support services, the true object of the contract is for the provision of a fully operational and automated Traffic Signal Management system. The required services are provided as part of the sale of the system. Therefore, the true object of the contract is the provision of tangible personal property to the Commonwealth of Virginia. Tangible personal property purchased or leased by Contractor B, the title to which passes to the Commonwealth, may be purchased exempt from the Virginia sales tax using resale exemption certificates.

Example 5: Contractor C enters into a contract with the federal government on June 30, 2005, to replace two antennas on a combat tank. A separate order issued on July 5, 2006, pursuant to the contract calls for integration and calibration of the two antennas. Although the contract was executed prior to July 1, 2006, the true object test will be applied to the separate order issued on July 5, 2006, as that order was issued on or after July 1, 2006, and therefore, falls under the new true object test policy effective July 1, 2006. The true object of the separate order is the provision of a service and Contractor C is deemed the taxable user and consumer of all tangible personal property used in providing those services.

With respect to indeterminate purpose contracts and basic ordering agreements executed prior to July 1, 2006, the true object test shall be applied to each individual order. If the true object of the individual order constitutes a sale of tangible personal property, the sale is treated as an exempt sale for resale to a government entity. The contractor may purchase tangible personal property exempt of tax as a sale for resale using a resale exemption certificate. If the true object of the individual order is the provision of a tax-exempt service, the contractor is the user and consumer of all tangible personal property used in providing the service as well as all tangible personal property that is transferred to the government entity.

Example 6: Contractor D enters into an indeterminate purpose contract with a government entity on January 1, 2005. The contract includes hourly rates for various labor categories and specifies that all supplies and services will be ordered by individual orders. On March 1, 2005, the government entity issues a task order requiring Contractor D to provide 40 hours of system evaluation services. On April 1, 2005, the government entity issues a task order requiring Contractor D to provide 20 licenses for a Commercial Off the Shelf (COTS) software package. The true object test would be applied to the March 1 and April 1 task orders independently. Thus, the March 1 order is an order for services, and the April 1 order is an order for tangible personal property.

E. Tax treatment of orders executed on and after July 1, 2006. As of July 1, 2006, the application of the sales and use tax to all mixed contracts and indeterminate purpose contracts shall be based on application of the true object test to each individual order and not the original contract. If the true object of an order is the provision of a service, the government contractor is deemed the user and consumer of all tangible personal property used in providing the service. If the true object of the order is the sale of tangible personal property, tangible personal property purchased by the contractor to fulfill that order, even if not expressly identified by the terms of the order itself, may be purchased exempt of the tax, provided the property can be tied back to the order for resale. For add-ons to government contracts executed on or after July 1, 2006, the true object test will be applied to each separate add-on without regard to the true object of the original contract. This amended treatment of orders executed on and after July 1, 2006, shall not apply to vendor orders as defined in subsection A of this section.

Example 7: Contractor A enters into a ship outfitting contract with the U.S. Navy. A task order is issued to Subcontractor B to obtain safety equipment. Subcontractor B submits an order to Vendor C for the provision of unmodified lifejackets. The order submitted to Vendor C constitutes a vendor order, as defined in subsection A of this section. As such, the true object test does not apply to the vendor order. Instead, Subcontractor B must apply the true object test at the task order level to determine whether items purchased in furtherance of fulfilling that task order are subject to the retail sales and use tax.

Example 8: Contractor A enters into a facilities management contract with a state agency to include the provision of trash bags. Contractor A issues a task order to Subcontractor B to provide trash removal services. Subcontractor B submits an order to Vendor C for a large quantity of trash bags to fulfill the order. The order submitted to Vendor C constitutes a vendor order, as defined in subsection A of this section. As such, the true object test should be applied at the task order level, rather than to the vendor order. Because the task order constitutes an order for the provision of services, Subcontractor B must pay retail sales tax on the purchase of the trash bags.

Example 9: Contractor A enters into a contract with the federal government on January 1, 2007, to design and provide a turn-key integrated computer hardware and software system. The contract is divided into separate orders. Order 1 requires that Contractor A design the integrated system. Order 2 requires Contractor A to test and evaluate potential hardware and software components of the integrated system. Order 3 requires that Contractor A provide and deliver the integrated system. Order 4 requires that Contractor A maintain the system, including performing all necessary functions to keep the computerized system up and running, for a period of five years following delivery. The true object of Order 1 is the provision of services, as it requires Contractor A to design the integrated supply system. The true object of Order 2 is the provision of services, as it requires Contractor A to perform the functions of testing and evaluation. As such, Contractor A is deemed the taxable user and consumer of all tangible personal property used in fulfilling Orders 1 and 2. The true object of Order 3 is the provision of tangible personal property. The true object of Order 4 is the provision of tangible personal property. As such, Contractor A may purchase items to fulfill Orders 3 and 4 exempt of the tax as purchases for resale. Contractor A purchases servers, routers, disk arrays processors and software to fulfill Order 3. Contractor A's cost accounting records clearly differentiate purchases among the four separate orders. Although the terms of Order 3 only discuss a "turn-key computerized system" generally and do not identify the specific parts constituting that system, Contractor A's purchases of the servers, routers, disk arrays, processors, and software can be tied back to Order 3.

Example 10: Contractor A enters into a contract with an agency of the Commonwealth of Virginia on March 1, 2006, for the purchase and installation of a telecommunications system in Virginia. The government entity issues a separate order on August 1, 2006, requiring that Contractor A provide installation services. Because the separate order is issued after July 1, 2006, the true object test is applied to the separate order, rather than the underlying contract. The true object of the order is the provision of services. Contractor A is deemed the taxable user and consumer of all tangible personal property used in performing these services.

Example 11: Contractor D executes a contract with the federal government on March 1, 2010, for the construction of a ship. The provisions of the contract contain a separate order (Order 1) that calls for engineering studies and design. An additional order (Order 2) mandates that Contractor D obtain steel and components, which will later become affixed to the ship. The true object of Order 1 is the provision of services, including engineering studies and design. As such, Contractor D is deemed the taxable user and consumer of all tangible personal property purchased in fulfilling Order 1. The true object of Order 2 is the provision of tangible personal property to be incorporated into a manufactured product sold to the government. As such, Contractor D can purchase the steel and components exempt of the tax for resale.

F. Transitional provisions for orders entered into prior to July 1, 2006. The true object test shall be applied to all orders issued under all mixed government contracts if executed on and after July 1, 2006, regardless of the date on which the original contract, add-on, or order was executed.

Example 12: Contractor B enters into a contract with a government entity on January 1, 2004. The contract requires Contractor B to sell and install a computer system to the government entity; therefore, the underlying true object of the contract is the sale of tangible personal property to the government entity. The contract is to be fulfilled by Contractor B over a five-year period with the final phase of the contract completed on or before December 31, 2008. From January 1, 2004, through June 30, 2006, all aspects of the contract will be treated as exempt sales of the tangible personal property to the government entity. Beginning July 1, 2006, the tax will be applied based on the true object of each individual order and taxed accordingly. Therefore, on and after July 1, 2006, if the true object of an order is the provision of a service, Contractor B will be liable for sales and use tax on all tangible personal property used in providing the service, even if the tangible personal property is eventually transferred to the government entity.

Example 13: Contractor C enters into a contract with a government entity on June 1, 2005. The underlying true object of the contract is the provision of janitorial services for a five-year period ending May 31, 2010. From June 1, 2005, through June 30, 2006, Contractor C will be the taxable user and consumer of all tangible personal property purchased for use in fulfilling the service contract. For all orders executed on and after July 1, 2006, the contractor will apply the true object test to each separate order. In orders for the sale of tangible personal property to the government, purchases under the order will be exempt, provided there is not a taxable interim use of the tangible personal property by the contractor prior to its sale to the government. In orders for the provision of a service, the contractor will be liable for the tax as user and consumer for purchases made pursuant to the order.

G. Interim use. If a contractor makes an interim use of tangible personal property held for resale to a government entity pursuant to an order for the purchase of tangible personal property, the use will constitute taxable interim use provided that the terms of the order in question call for the operation of the tangible personal property by the contractor and that operation is inconsistent with the holding of that property for resale.

However, if a contractor makes an interim use of tangible personal property held for resale to a government entity pursuant to an order, the use will constitute an exempt interim use if the terms of the order in question call for the operation of the tangible personal property and that operation is consistent with the holding of that property for resale.

In most instances, the testing and approval of tangible personal property prior to its transfer to the government entity will constitute exempt interim use. Likewise, a sale that is contingent upon the demonstrated successful operation of tangible personal property purchased under the order will be exempt of the retail sales and use tax.

Example 14: Contractor A enters into a contract with a state government agency after July 1, 2006, to provide and maintain computer systems, including hardware and software to that agency. A task order issued pursuant to the contract requires Contractor A to design a software package to be distributed to the state government agency. Under the terms of the order, Contractor A must provide a training session for the duration of one week to government agency employees on the use of this computer software package. Employees of the government agency visit Contractor A's facilities for a "hands-on" training session, at which Contractor A uses the actual software it will send to the government agency. After training is completed, Contractor A repackages the software and ships it by common carrier to the government agency. Because Contractor A's use of the computers is integral to the sale of computer systems to the state government and because the use is consistent with the resale, the use is insufficient to destroy the resale status of the transaction. Contractor A has made an exempt "interim use" of the software, prior to shipping it to the government agency. Contractor A's purchase of the software is exempt.

Example 15: Contractor B enters into a contract with a state agency on January 1, 2007, to acquire and furnish equipment and materials that are elements and parts of a computerized Traffic Management System. The system would provide computerized highway surveillance and control for highways in the state of Virginia. Under the provisions of the contract, Contractor B is required to provide documentation and training services on the new system to the state agency's employees. A separate order requires that Contractor B provide computers as components of the system, and contains a provision providing that the sale of such computers to the state agency is contingent upon Contractor B's ability to demonstrate the successful operation of the computers for a two-year period. Because the sale is contingent upon the successful operation of the computers for a two-year period, such use constitutes exempt interim use, and the computers can be purchased exempt of the retail sales and use tax.

Example 16: Contractor C enters into a mixed contract with a state agency on January 1, 2007. Order 1 under the contract requires Contractor C to operate and maintain the state's Hazardous Waste Accumulation Facility. Order 2 of the contract requires Contractor C to provide containers to the state agency. Contractor C uses the containers to fulfill another contract before passing the containers over to the state government. Contractor C's use of the containers to fulfill an outside contract, prior to passing these containers on to the state agency constitutes use that is inconsistent with the holding of that property for resale. This use is sufficient to destroy the resale status of the containers. Contractor C will be subject to tax on the purchase of these containers.

Example 17: Contractor D enters into a contract with a government entity to provide floor-cleaning services. The government entity issues an order to Contractor C for the purchase of mops and a separate task order for the provision of floor-cleaning services. Although Contractor C will use these mops to fulfill the service contract with the government entity, Contractor C's purchase of the mops under the individual order will be exempt from tax as a sale for resale. Contractor D's use of the mops does not constitute "taxable interim use" because this use was not directed under the individual order for the purchase of mops. Thus, Contractor D may purchase these mops exempt of the retail sales and use tax.

H. Real property contracts with government entities. If a contractor contracts with a governmental entity to perform construction or reconstruction with respect to real property, and in connection with this real property contract, agrees to furnish tangible personal property for use in real estate construction, the contractor shall be deemed to have purchased this tangible personal property for use and consumption and shall be liable for the sales and use tax on this tangible personal property.

Nothing in this regulation shall be construed to authorize the application of the true object test to real property contracts with government entities. A real property contractor is taxed on the cost price of any construction or installation supplies used or consumed in the performance of real property construction, installation or repair, regardless of whether the true object of the contract or order is for services or the sale of tangible personal property. Construction and installation supplies shall include, but not be limited to, structural steel, concrete, conduit, wiring, cabling, nuts, bolts, anchors, screws, nails, glue and other materials used or consumed by a government contractor in fulfilling a contract with any government entity. Nothing in this regulation shall be construed to exempt from the retail sales and use tax materials, equipment, or other tangible personal property purchased by a contractor for use in real property construction contracts with a government entity, regardless of whether title to such property passes directly to the government entity upon purchase by the contractor or if the contractor is reimbursed directly by the government entity for the cost of such property.

The modified application of the true object test to individual orders will not apply to contracts with a government entity to perform construction or reconstruction with respect to real property. For more information on real property construction contracts with government entities, see 23VAC10-210-410.

I. Subcontractor activities.

1. Generally. For purposes of this section, a subcontractor to a prime contractor with a government entity shall be granted the same tax treatment as the prime contractor when fulfilling its contractual obligations to the prime contractor. Thus, a subcontractor shall apply the true object test to the overall purpose of the subcontract, unless it contains individual orders that were executed on or after July 1, 2006, in which case the subcontractor must apply the true object test to each separate order to determine the tax application.

Example 18: General Contractor A enters into a contract with the federal government, under which General Contractor A will furnish, install and maintain a telecommunications system. General Contractor A furnishes the system and subcontracts with Subcontractor 1 to install the system and Subcontractor 2 to provide maintenance and repair services. Order 1 is issued to General Contractor A for the provision of the telecommunications system, Order 2 is issued to Subcontractor 1 to install the system and Orders 3 and 4 are issued to Subcontractor 2 to provide the maintenance and repair services. General Contractor A, Subcontractor 1 and Subcontractor 2 may apply the true object test to each separate order to determine the tax application of each separate order.

2. Subcontractor recordkeeping requirements. Every subcontractor under a subcontract that is in furtherance of a government contract will be required to maintain suitable records and documentation in order to accurately determine the true object of an order entered into in furtherance of a contract between a prime contractor and a government entity. If the subcontractor determines that the true object of an order is the provision of tangible personal property, the subcontractor must present an ST-10 resale exemption certificate in order to purchase the property exempt of the retail sales and use tax. Every subcontractor will be required to present an ST-10 resale exemption certificate for all such exempt transactions, regardless of how far removed the contractor is from the general contractor. If a prime contractor issues an order to a subcontractor in furtherance of a government contract, the prime contractor shall provide the subcontractor a task order number, a copy of the task order and the name of the government agency or other such documentation that would allow the subcontractor to prove that the order is in furtherance of a government contract.

Example 19: Contractor A enters into a contract with a state agency for the development of a computer system, which requires Contractor A to furnish computers to the state agency. The state agency issues a task order for the provision of computers. The prime contractor issues a task order to Subcontractor 1, who issues a task order to Subcontractor 2 to provide the computers. Subcontractor 2 will be required to present the vendor with an ST-10 resale exemption certificate. Subcontractor 1 will be required to present an ST-10 resale exemption certificate to Subcontractor 2. The general contractor will be required to present Subcontractor 1 with an ST-10 resale exemption certificate. The state agency will be required to present to the prime contractor an ST-12 government exemption certificate.

J. Mixed invoices. In cases where a single vendor order or invoice for tangible personal property purchased by a government contractor includes items used in fulfilling two or more separate orders issued under a government contract, the government contractor shall determine the sales and use tax application based upon the true object of each of the two or more separate orders. Those items that will be used to fulfill the order for tangible personal property shall be deemed purchased pursuant to an order for tangible personal property and shall be exempt of the tax for resale. Those items that will be used to fulfill the order determined to be for the provision of services shall be deemed purchased pursuant to an order for the provision of services and shall be subject to the tax. Tax shall be paid on the cost price of items classified as items that are consumed in providing the services.

Example 20: Contractor E is under contract with a government entity that includes an order to supply 50 computer monitors to the government entity. The same contract contains a separate order requiring Contractor E to provide services to the government entity that require an additional 50 computer monitors for use by Contractor E. Contractor E purchases all 100 computer monitors from the same supplier under the same vendor order. The cost for the 50 monitors that will be supplied to the government will be exempt from the tax because the monitors are purchased pursuant to an order for which the true object is the provision of tangible personal property for resale. The remaining 50 computer monitors, to be used in providing services to the government entity under the contract will be fully taxable because they are purchased pursuant to an order for which the true object is the provision of a service. Contractor E should determine the total cost price of the 50 computer monitors based on the cost price of the monitors actually provided to the government entity in fulfillment of the service order.

K. Classified contracts. In cases where the true object of an order requires the review of a classified government contract, the department's authorized Classified Contract Agent will review the order to determine if the order is for the sale of tangible personal property or for the provision of services. In situations where it is impossible or infeasible to obtain a classified contract, the department may review other sources of information in determining the true object of the order; however, the ultimate burden of proving that the true object of the transaction is the provision of tangible personal property or services rests with the contractor. Other sources of information may include, but are not limited to unclassified statements of work, redacted versions of classified contracts, or other source documents furnished by the government entity and the government contractor in determining the true object of the contract or orders.

L. Consumable goods. A contractor is taxed on the cost price of all office, cleaning, clothing and other supplies used or consumed by the contractor in the performance of any type of government contract, or after June 30, 2006, in the performance of any type of order with a government entity.

Example 21: Contractor A enters into a contract with the federal government to provide chemical analysis of certain water samples. Pencils, paper, and other office supplies to be used in performing the contract will constitute consumable goods and will be subject to sales tax.

M. Recordkeeping requirements of the contractor. Generally, the department will rely on the language used in each individual order to determine the true object of the transaction. In cases where the department is unable to determine the true object of an individual order, the department may consider other source documents to make its determination. Other documents may include, but are not limited to, the government agency's request for proposal, basic ordering agreements, chart of accounts, individual transactions performed under a separate order, and confirmation of either goods or services delivered. Despite the change in policy, the underlying contract should also be made available for review. It is the contractor's duty to retain suitable records and documentation in order to accurately determine the true object of an order entered into with government entities.

To determine whether a particular purchase was made to fulfill a particular order, the department shall rely on the normal books and records kept by the contractor in the ordinary course of its business. For example, if a contractor's books and records show that a purchase of property was charged to an account that identifies a specific order, those purchases should be deemed to be made to fulfill that order. The contractor may provide other information or documentation to identify the purchases that were made to fulfill that order, but shall not be required to produce any documentation not already kept by the contractor in the ordinary course of business. A particular purchase made by a contractor may be for resale even if the corresponding order does not expressly reference that specific purchase. The contractor is required to abide by the recordkeeping requirements set forth in 23VAC10-210-470.

N. Audit methodology. All government contractor audits will be conducted in accordance with audit procedures as established by the department, including but not limited to, those procedures outlined in the department's Field Audit Procedure Manual.