Tax Type
Retail Sales and Use Tax
Description
Certification of convenience; Public utility
Topic
Taxability of Persons and Transactions
Date Issued
04-14-2000
April 14, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter in which you seek correction of a retail sales and use tax assessment issued to **** (the "Taxpayer") for the period January 1994 through December 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides local exchange and private line telephone service in Virginia. The Taxpayer applied to the Virginia State Corporation Commission ("SCC") in March 1996 for a certificate of convenience and necessity as a local exchange carrier. Certification was issued to the Taxpayer on July 22, 1996. Prior to July 1996, the Taxpayer operated as an uncertificated telecommunications service provider.
You note that the audit staff agrees that effective July 22, 1996, the Taxpayer could make exempt purchases of items used directly in the rendition of its public service under Code of Virginia § 58.1-609.3(3). What is at issue in this case is the application of the tax to those items which were ordered, invoiced, and paid for before July 22, 1996.
You maintain these items were purchased by the Taxpayer in anticipation of its receiving certification and that the equipment was used thereafter in the provision of its certificated service.
DETERMINATION
In pertinent part, Code of Virginia § 58.1-609.3(3) provides an exemption for:
Tangible personal property sold or leased to ... a telecommunications company as defined in § 58.1-400.1 ... for use or consumption by such ... company directly in the rendition of its public service....
A "telecommunications company" is defined in § 58.1-400.1 as "a telephone company or other person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing local exchange telephone service [or] interexchange service...."
First, I am concerned that many of the assessed fixed assets and expensed purchases were purchased two years and more before the Taxpayer received its SCC certification. Other items, including the most costly assessed fixed asset, were purchased months before the Taxpayer even applied to the SCC in March 1996 for certification. It is reasonable to assume that at least some of these items were placed in service prior to the Taxpayer's receiving certification.
More to the point, the statute specifically applies to tangible personal property "sold or leased to" a certificated telecommunications company. The contested items in this case were not sold to a certificated telecommunications company because the Taxpayer was not certificated at the time of the contested transactions. Based on the doctrine of strict construction of sales and use tax exemptions, the contested items are taxable. This determination is also consistent with that set out in the enclosed Public Document 86-226 (11/3/86) which also addresses purchases by a telecommunications service provider. In that case, the Tax Commissioner determined that equipment purchased or leased by a telecommunications provider was taxable regardless that the taxpayer later became certificated as a public service company.
Finally, you note that the lag time involved in ordering, purchasing and installing equipment would severely handicap telecommunications companies if they were not able to initiate purchases of equipment prior to the time certificates were obtained. Nevertheless, the department is bound by the clear language of the statute.
Based on this determination, the assessment is correct. Because of the delay in responding to your appeal, interest on the unpaid assessment has been accrued only through the date of your protest letter. No additional interest will accrue provided the assessment is fully paid within 30 days from the date of this letter. After that time, interest will accrue to date on any unpaid balance.
Payment should be sent to *******, Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this letter, please contact **** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22391I
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter in which you seek correction of a retail sales and use tax assessment issued to **** (the "Taxpayer") for the period January 1994 through December 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides local exchange and private line telephone service in Virginia. The Taxpayer applied to the Virginia State Corporation Commission ("SCC") in March 1996 for a certificate of convenience and necessity as a local exchange carrier. Certification was issued to the Taxpayer on July 22, 1996. Prior to July 1996, the Taxpayer operated as an uncertificated telecommunications service provider.
You note that the audit staff agrees that effective July 22, 1996, the Taxpayer could make exempt purchases of items used directly in the rendition of its public service under Code of Virginia § 58.1-609.3(3). What is at issue in this case is the application of the tax to those items which were ordered, invoiced, and paid for before July 22, 1996.
You maintain these items were purchased by the Taxpayer in anticipation of its receiving certification and that the equipment was used thereafter in the provision of its certificated service.
DETERMINATION
In pertinent part, Code of Virginia § 58.1-609.3(3) provides an exemption for:
Tangible personal property sold or leased to ... a telecommunications company as defined in § 58.1-400.1 ... for use or consumption by such ... company directly in the rendition of its public service....
A "telecommunications company" is defined in § 58.1-400.1 as "a telephone company or other person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing local exchange telephone service [or] interexchange service...."
First, I am concerned that many of the assessed fixed assets and expensed purchases were purchased two years and more before the Taxpayer received its SCC certification. Other items, including the most costly assessed fixed asset, were purchased months before the Taxpayer even applied to the SCC in March 1996 for certification. It is reasonable to assume that at least some of these items were placed in service prior to the Taxpayer's receiving certification.
More to the point, the statute specifically applies to tangible personal property "sold or leased to" a certificated telecommunications company. The contested items in this case were not sold to a certificated telecommunications company because the Taxpayer was not certificated at the time of the contested transactions. Based on the doctrine of strict construction of sales and use tax exemptions, the contested items are taxable. This determination is also consistent with that set out in the enclosed Public Document 86-226 (11/3/86) which also addresses purchases by a telecommunications service provider. In that case, the Tax Commissioner determined that equipment purchased or leased by a telecommunications provider was taxable regardless that the taxpayer later became certificated as a public service company.
Finally, you note that the lag time involved in ordering, purchasing and installing equipment would severely handicap telecommunications companies if they were not able to initiate purchases of equipment prior to the time certificates were obtained. Nevertheless, the department is bound by the clear language of the statute.
Based on this determination, the assessment is correct. Because of the delay in responding to your appeal, interest on the unpaid assessment has been accrued only through the date of your protest letter. No additional interest will accrue provided the assessment is fully paid within 30 days from the date of this letter. After that time, interest will accrue to date on any unpaid balance.
Payment should be sent to *******, Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this letter, please contact **** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22391I
Related Documents
Rulings of the Tax Commissioner