Tax Type
Retail Sales and Use Tax
Description
Utilities
Topic
Taxability of Persons and Transactions
Date Issued
05-11-2000
May 11, 2000
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter of March 7, 2000, in which you are requesting a ruling with respect to the retail sales and use tax on behalf of your client, ***** (the "Taxpayer").
FACTS
The Taxpayer is a public service corporation engaged in the business of electricity distribution. The Taxpayer is in the process of purchasing and installing Fixed Network Systems (the "System") on residential usage meters. The System contains four components: an Electronic Receiver Transmitter ("ERT") module, a Cell Control Unit ("CCU"), a Network Control Node ("NCN"), and a Genesis Itron Host Processor ("GIHP"). Each of these components and their function will be discussed separately below.
ERT
The ERT is attached to the meter on the customer's premises. The ERT measures the amount of electricity used by the customer and is powered from the line side of the meter, i.e., powered by the Taxpayer and not the customer.
CCU
The CCU is designed to receive information from a predetermined set of ERTs. The CCU is generally mounted on utility poles or street lights. The CCU is programmed to transmit and receive transmissions from the ERTs regarding the power usage of the customer.
NCN
The NCN serves a routing device for the System and facilitates communications between the CCN and the GIHP.
GIHP
The GIHP is the processing computer and database management for the System that provides network control and management. The GIHP acts as the interface between the fixed network and utility, regulatory and third-party applications.
The System is capable of performing three separate functions. First, the System may record and communicate customer consumption information which is utilized by the Taxpayer in its billing function. Second, the System can identify power outages and where the outages have occurred. Third, the System can monitor and report tampering, which assists the Taxpayer in identifying and correcting power theft. As understood by this office, at the present time the System is used solely for recording and communicating customer usage for billing purposes. The Taxpayer is requesting a ruling on the sales and use tax application to each component of the System.
RULING
The information provided indicates that the System is an integrated system in which all the components work together. The absence of one component of the System would render it ineffective in performing its intended functions. Based on this, I will address the System as a single item for purposes of the sales and use tax application.
Title 23 of the Virginia Administrative Code (VAC) 10-210-3020, copy enclosed, addresses the department's policy with respect to public utilities and provides the following:
Tangible personal property purchased or leased by a public utility subject to a state franchise or license tax upon gross receipts for use or consumption directly in the rendition of its public service is exempt from the tax.
Subsection H(1) of this regulation addresses the Uniform System of Accounts with respect to electric utility accounts and provides the taxable status of primary accounts. Account 370 under the Electric Plant Accounts provides that meters for use by electric public utilities are exempt from the tax. Account 903 under Operation and Maintenance Expense Accounts provides that meter reading expenses fall under Customer Accounts Operation and are taxable.
While it is recognized by the department that the System has the capability to perform several different functions, the only function which it performs at the present time is meter reading: (i.e., reading and communicating customer usage for billing purposes). Based on the Uniform System of Accounts classifications set forth above, and the usage of the System at the present time, I must conclude that all components of the System are taxable.
As understood by this office, the Taxpayer is currently retro-fitting existing meters with ERT modules. While meters qualify for the exemption based on the Uniform System of Accounts because they are used in the distribution function, the ERT modules do not qualify for the exemption as they are used solely in the meter reading function (a function which is taxable under the Uniform System of Accounts). The department must look to the function of the ERT module in order to determine the tax application.
This ruling is based on the present use of the System at this time. However, should the Taxpayer utilize the Systems in other functions, some of which may be exempt, the department will certainly revisit this issue and re-evaluate the tax application.
If you should have any questions, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/27636K
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter of March 7, 2000, in which you are requesting a ruling with respect to the retail sales and use tax on behalf of your client, ***** (the "Taxpayer").
FACTS
The Taxpayer is a public service corporation engaged in the business of electricity distribution. The Taxpayer is in the process of purchasing and installing Fixed Network Systems (the "System") on residential usage meters. The System contains four components: an Electronic Receiver Transmitter ("ERT") module, a Cell Control Unit ("CCU"), a Network Control Node ("NCN"), and a Genesis Itron Host Processor ("GIHP"). Each of these components and their function will be discussed separately below.
ERT
The ERT is attached to the meter on the customer's premises. The ERT measures the amount of electricity used by the customer and is powered from the line side of the meter, i.e., powered by the Taxpayer and not the customer.
CCU
The CCU is designed to receive information from a predetermined set of ERTs. The CCU is generally mounted on utility poles or street lights. The CCU is programmed to transmit and receive transmissions from the ERTs regarding the power usage of the customer.
NCN
The NCN serves a routing device for the System and facilitates communications between the CCN and the GIHP.
GIHP
The GIHP is the processing computer and database management for the System that provides network control and management. The GIHP acts as the interface between the fixed network and utility, regulatory and third-party applications.
The System is capable of performing three separate functions. First, the System may record and communicate customer consumption information which is utilized by the Taxpayer in its billing function. Second, the System can identify power outages and where the outages have occurred. Third, the System can monitor and report tampering, which assists the Taxpayer in identifying and correcting power theft. As understood by this office, at the present time the System is used solely for recording and communicating customer usage for billing purposes. The Taxpayer is requesting a ruling on the sales and use tax application to each component of the System.
RULING
The information provided indicates that the System is an integrated system in which all the components work together. The absence of one component of the System would render it ineffective in performing its intended functions. Based on this, I will address the System as a single item for purposes of the sales and use tax application.
Title 23 of the Virginia Administrative Code (VAC) 10-210-3020, copy enclosed, addresses the department's policy with respect to public utilities and provides the following:
Tangible personal property purchased or leased by a public utility subject to a state franchise or license tax upon gross receipts for use or consumption directly in the rendition of its public service is exempt from the tax.
Subsection H(1) of this regulation addresses the Uniform System of Accounts with respect to electric utility accounts and provides the taxable status of primary accounts. Account 370 under the Electric Plant Accounts provides that meters for use by electric public utilities are exempt from the tax. Account 903 under Operation and Maintenance Expense Accounts provides that meter reading expenses fall under Customer Accounts Operation and are taxable.
While it is recognized by the department that the System has the capability to perform several different functions, the only function which it performs at the present time is meter reading: (i.e., reading and communicating customer usage for billing purposes). Based on the Uniform System of Accounts classifications set forth above, and the usage of the System at the present time, I must conclude that all components of the System are taxable.
As understood by this office, the Taxpayer is currently retro-fitting existing meters with ERT modules. While meters qualify for the exemption based on the Uniform System of Accounts because they are used in the distribution function, the ERT modules do not qualify for the exemption as they are used solely in the meter reading function (a function which is taxable under the Uniform System of Accounts). The department must look to the function of the ERT module in order to determine the tax application.
This ruling is based on the present use of the System at this time. However, should the Taxpayer utilize the Systems in other functions, some of which may be exempt, the department will certainly revisit this issue and re-evaluate the tax application.
If you should have any questions, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/27636K
Rulings of the Tax Commissioner