Tax Type
Retail Sales and Use Tax
Description
Public utility; Material furnished to contractor; Electrical substations
Topic
Exemptions
Property Subject to Tax
Date Issued
10-05-2000
October 5, 2002
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of an assessment issued to * * * (the "Taxpayer") for the period May 1993 through February 1999. Your request is being treated as an application for correction of an assessment under Code of Virginia § 58.1-1821. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a contractor that constructs electrical substations. The Taxpayer was assessed use tax on certain construction materials provided to it by an electric utility for use in the construction of a substation in Virginia. The electric utility is a public service corporation and qualifies for exemption from sales and use tax under Code of Virginia § 58.1-609.3(3). The Taxpayer maintains that the materials provided to it by the electric utility either qualify for exemption from the tax, or that the electric utility paid the tax on any taxable materials directly to the Commonwealth of Virginia.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-410(A) (copy enclosed) provides that "property which is exempt from the tax when purchased by a manufacturer, processor, miner, public service corporation . . . may also be furnished to a contractor without such contractor becoming subject to use tax." Title 23 VAC 10-210-3020(H) (copy enclosed) provides that the Uniform System of Accounts shall be used to administer the application of Virginia sales and use taxes to public utilities.
Based on information provided to the department, the electric utility charged the material purchases to account number 362 of the Uniform System of Accounts. The department's regulation contains a footnote to account number 362 that states tangible personal property charged to this account is exempt except items charged to the categories of structures, including general purpose equipment, and administration, record keeping and employee comfort. The explanation in this footnote states that "only those structural materials which are an immediate part of the production of electricity are excluded from this footnote."
Based on a review of the contested items in the audit, it appears the items were properly held taxable in the audit. The Taxpayer has not provided evidence that the items are used in an exempt manner. In addition, the Taxpayer has not shown that the electric utility paid sales or use tax on any of the items. Notwithstanding the department's position, I will allow the Taxpayer ninety (90) days to obtain documentation from the utility that demonstrates that the items are exempt or that sales or use tax has been paid on the items.
The Taxpayer should contact * * * in the Office of Tax Policy at * * * if it has any documentation or information to provide the department for review. If the Taxpayer does not contact the department within ninety days, the assessment will be considered correct and an updated notice of assessment will be issued to the Taxpayer.
Danny M. Payne
Tax Commissioner
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of an assessment issued to * * * (the "Taxpayer") for the period May 1993 through February 1999. Your request is being treated as an application for correction of an assessment under Code of Virginia § 58.1-1821. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a contractor that constructs electrical substations. The Taxpayer was assessed use tax on certain construction materials provided to it by an electric utility for use in the construction of a substation in Virginia. The electric utility is a public service corporation and qualifies for exemption from sales and use tax under Code of Virginia § 58.1-609.3(3). The Taxpayer maintains that the materials provided to it by the electric utility either qualify for exemption from the tax, or that the electric utility paid the tax on any taxable materials directly to the Commonwealth of Virginia.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-410(A) (copy enclosed) provides that "property which is exempt from the tax when purchased by a manufacturer, processor, miner, public service corporation . . . may also be furnished to a contractor without such contractor becoming subject to use tax." Title 23 VAC 10-210-3020(H) (copy enclosed) provides that the Uniform System of Accounts shall be used to administer the application of Virginia sales and use taxes to public utilities.
Based on information provided to the department, the electric utility charged the material purchases to account number 362 of the Uniform System of Accounts. The department's regulation contains a footnote to account number 362 that states tangible personal property charged to this account is exempt except items charged to the categories of structures, including general purpose equipment, and administration, record keeping and employee comfort. The explanation in this footnote states that "only those structural materials which are an immediate part of the production of electricity are excluded from this footnote."
Based on a review of the contested items in the audit, it appears the items were properly held taxable in the audit. The Taxpayer has not provided evidence that the items are used in an exempt manner. In addition, the Taxpayer has not shown that the electric utility paid sales or use tax on any of the items. Notwithstanding the department's position, I will allow the Taxpayer ninety (90) days to obtain documentation from the utility that demonstrates that the items are exempt or that sales or use tax has been paid on the items.
The Taxpayer should contact * * * in the Office of Tax Policy at * * * if it has any documentation or information to provide the department for review. If the Taxpayer does not contact the department within ninety days, the assessment will be considered correct and an updated notice of assessment will be issued to the Taxpayer.
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner