Tax Type
Retail Sales and Use Tax
Description
Wind tunnel; Research and development; Government contractor
Topic
Exemptions
Property Subject to Tax
Date Issued
03-09-2001
March 9, 2001
Re: Ruling Request: Retail Sales and Use Tax
Dear ****
This is in response to your letter of November 1, 2000, requesting a ruling on the application of the retail sales and use tax to tangible personal property purchased in connection with a government contract. Copies of cited sources are enclosed.
FACTS
The Taxpayer is an engineering firm and has entered into a lump-sum contract for the design, fabrication and replacement of a high-pressure air storage system for a wind tunnel complex at the NASA Langley Research Center. The work includes the design, fabrication and installation of the following:
high-pressure air storage vessels,
support structure and foundation for these vessels, and
a manifold system and air transfer pipeline to deliver the high-pressure air from the air storage vessels to the existing tunnel air supply system.
You indicate that the support structure, foundation, manifold system and air transfer pipeline are all integral components of the wind tunnel system used in aeronautical research and development. You maintain that this work qualifies for exemption from the sales tax based on the provisions of Title 23 of the Virginia Administrative Code (VAC) 10-210-760 and 10-210-3073.
RULING
In determining the proper tax treatment of equipment used in wind tunnel facilities, the department looks to the contract for guidance on whether the equipment to be furnished will be used directly and exclusively in research and development activities. Although a copy of the contract has not been provided, the facts presented indicate that the Taxpayer would be required to furnish and install some items for direct and exclusive use in the research and development of flight propulsion systems.
In Public Documents (P.D.) 93-99 (4/12/93) and 93-201 (9/27/93), the department determined that wind tunnel equipment remained tangible personal property upon installation, as it was subject to continuous modifications and was not intended to become a permanent fixture. In these instances, a contractor is viewed as a retailer with respect to such items and allowed to purchase them under a resale exemption certificate. However, purchases of materials that became a part of the building comprising the shell of the wind tunnel facility were determined to be taxable to the contractor, since the shell of the building constituted a permanent structure.
Based on the above rulings, the high-pressure air storage vessels, the manifold system, and air transfer pipeline at issue would remain tangible components upon installation if these items are not intended to become a permanent fixture. If this is the case, the Taxpayer may purchase them pursuant to a resale exemption certificate. The retail sale of these items to NASA is also exempt pursuant to Code of Virginia § 58.1-609.1(4).
In regard to foundations made of concrete or other permanent construction materials, and any support structures annexed to the foundations by permanent bolting, welding, or other permanent means, these installations are considered permanently affixed to the realty, and the cost price of foundation and structure materials are taxable to the Taxpayer. However, when support structures are not permanently fixed to the foundations, the resale exemption may apply to the purchase of materials for support structures provided the "true object" of the contract is for the sale of tangible personal property. See 23 VAC 10-210-4040(D).
Alternatively, the provisions of 23 VAC 10-210-3073 may apply when a person contracts to perform real property construction services, and furnishes research equipment to be permanently fixed to realty. Thus, if a wind tunnel is erected for use by NASA directly and exclusively in research and development activities, and is permanently affixed to realty by the Taxpayer, the Taxpayer may purchase the wind tunnel equipment and materials exempt of the tax pursuant to the research and development exemption. As foundation and support structures for a wind tunnel are not considered used directly in research and development activities, the materials for such are subject to taxation as noted above.
This ruling is based only on the information presented, which does not include a copy of the contract at issue, engineering drawings, or other relevant documents. Accordingly, the application of the tax may change if new facts are presented.
If you have any questions about this ruling, please contact **** in the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31581R
Re: Ruling Request: Retail Sales and Use Tax
Dear ****
This is in response to your letter of November 1, 2000, requesting a ruling on the application of the retail sales and use tax to tangible personal property purchased in connection with a government contract. Copies of cited sources are enclosed.
FACTS
The Taxpayer is an engineering firm and has entered into a lump-sum contract for the design, fabrication and replacement of a high-pressure air storage system for a wind tunnel complex at the NASA Langley Research Center. The work includes the design, fabrication and installation of the following:
high-pressure air storage vessels,
support structure and foundation for these vessels, and
a manifold system and air transfer pipeline to deliver the high-pressure air from the air storage vessels to the existing tunnel air supply system.
You indicate that the support structure, foundation, manifold system and air transfer pipeline are all integral components of the wind tunnel system used in aeronautical research and development. You maintain that this work qualifies for exemption from the sales tax based on the provisions of Title 23 of the Virginia Administrative Code (VAC) 10-210-760 and 10-210-3073.
RULING
In determining the proper tax treatment of equipment used in wind tunnel facilities, the department looks to the contract for guidance on whether the equipment to be furnished will be used directly and exclusively in research and development activities. Although a copy of the contract has not been provided, the facts presented indicate that the Taxpayer would be required to furnish and install some items for direct and exclusive use in the research and development of flight propulsion systems.
In Public Documents (P.D.) 93-99 (4/12/93) and 93-201 (9/27/93), the department determined that wind tunnel equipment remained tangible personal property upon installation, as it was subject to continuous modifications and was not intended to become a permanent fixture. In these instances, a contractor is viewed as a retailer with respect to such items and allowed to purchase them under a resale exemption certificate. However, purchases of materials that became a part of the building comprising the shell of the wind tunnel facility were determined to be taxable to the contractor, since the shell of the building constituted a permanent structure.
Based on the above rulings, the high-pressure air storage vessels, the manifold system, and air transfer pipeline at issue would remain tangible components upon installation if these items are not intended to become a permanent fixture. If this is the case, the Taxpayer may purchase them pursuant to a resale exemption certificate. The retail sale of these items to NASA is also exempt pursuant to Code of Virginia § 58.1-609.1(4).
In regard to foundations made of concrete or other permanent construction materials, and any support structures annexed to the foundations by permanent bolting, welding, or other permanent means, these installations are considered permanently affixed to the realty, and the cost price of foundation and structure materials are taxable to the Taxpayer. However, when support structures are not permanently fixed to the foundations, the resale exemption may apply to the purchase of materials for support structures provided the "true object" of the contract is for the sale of tangible personal property. See 23 VAC 10-210-4040(D).
Alternatively, the provisions of 23 VAC 10-210-3073 may apply when a person contracts to perform real property construction services, and furnishes research equipment to be permanently fixed to realty. Thus, if a wind tunnel is erected for use by NASA directly and exclusively in research and development activities, and is permanently affixed to realty by the Taxpayer, the Taxpayer may purchase the wind tunnel equipment and materials exempt of the tax pursuant to the research and development exemption. As foundation and support structures for a wind tunnel are not considered used directly in research and development activities, the materials for such are subject to taxation as noted above.
This ruling is based only on the information presented, which does not include a copy of the contract at issue, engineering drawings, or other relevant documents. Accordingly, the application of the tax may change if new facts are presented.
If you have any questions about this ruling, please contact **** in the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31581R
Rulings of the Tax Commissioner