Tax Type
Retail Sales and Use Tax
Description
Ships and vessels; Supplies not delivered directly to ship; Repair parts
Topic
Exemptions
Property Subject to Tax
Date Issued
01-04-2001
January 4, 2001
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 1995 through February 1998. I apologize for the delay in responding to your letter.
FACTS
Under a contract with the U.S. Navy, the Taxpayer operates and maintains oceanic vessels that are public vessels of the United States government. The mission of the ships, to collect oceanographic and hydrographic data worldwide, is conducted by government personnel aboard ship. The data is delivered to federal government facilities and is subsequently used to prepare maps, charts, and other documents.
The contract requires the Taxpayer to perform a wide range of tasks both aboard ship and in port. The tasks include all activities necessary for the operation of the ships, including navigation, maintenance, ship repairs, and provisioning. The Taxpayer is required to provide the personnel and operational and technical support to accomplish these tasks.
The Taxpayer is also responsible to purchase and provide a wide range of equipment, tools, provisions and supplies. In addition to repair and replacement parts, the contract identifies three categories of such property:
1. Installed equipment that is affixed to the ship, including generators, anchor windlasses and winches;
2. loose equipment that is not affixed to the ship, including hand-held power tools, cleaning equipment, hand-held engineering tools, deck equipment (e.g., mooring lines and lifejackets), galley equipment (e.g., pots and pans), and safety equipment (e.g., medical equipment and fire extinguishers); and
3. consumable supplies such as paper products, linens, tableware, cleaning and plumbing supplies, nuts, bolts, etc.
Most of the property purchased by the Taxpayer during the audit period and pursuant to its contract was delivered by vendors to ports outside of Virginia. These items are not assessed. In some cases, however, repair parts and replacement items were first delivered to the Taxpayer's Virginia warehouse before being reshipped to ports overseas. The audit staff assessed tax and interest on these contested items because the Taxpayer took possession of them in Virginia.
You contend that the contested items are exempt primarily under the "ships and vessels" exemption set out in Code of Virginia § 58.1-609.3(4).
DETERMINATION
Code of Virginia § 58.1-609.3(4) provides a sales and use tax exemption for:
Ships or vessels, or repairs and alterations thereof, used or to be used exclusively or principally in interstate or foreign commerce; fuel and supplies for use or consumption aboard ships or vessels plying the high seas, either in intercoastal trade between ports in the Commonwealth and ports in other states of the United States or its territories or possessions, or in foreign commerce between ports in the Commonwealth and ports in foreign countries, when delivered directly to such ships or vessels; or tangible personal property used directly in the building, conversion or repair of the ships or vessels covered by this subdivision ....
In Public Document 91-34, the department determined that a vessel performing offshore research for the United States Navy was engaged in interstate or foreign commerce and, therefore, qualified for this exemption. In Public Documents 97-36 (1/27/97) and 00-88 (5/17/2000), the department determined that an exemption is available for component parts of a ship or vessel and further determined that a component part must be permanently affixed to the ship or vessel. Items such as life rafts, life vests and life buoys, portable heaters, and ropes and slings constitute supplies and are not component parts because they are not permanently attached to the ship's structure.
The Taxpayer's activities in this case are similar to those addressed in Public Document 91-34. As in that case, the Taxpayer's contract with the United States Navy is a maritime business venture that qualifies as "foreign commerce" as set out in the statute. Accordingly, the Taxpayer's ships in this case qualify for the "ships and vessels" exemption because the ships are "used exclusively or principally in interstate or foreign commerce."
The Taxpayer's purchases of installed equipment are exempt under the exemption because these items constitute component parts. In addition, repair parts, replacement parts and other tangible personal property used directly in the building, conversion or repair of the ships and vessels in this case are exempt from the tax and will be removed from the assessment.
In order to qualify for the exemption for supplies (other than supplies used directly in building, conversion or repair activities), the ship or vessel must satisfy three criteria:
The ship or vessel must ply the high seas;
either in intercoastal trade between ports in Virginia and ports in other states or in foreign commerce between ports in Virginia and ports in foreign countries; and
the supplies are delivered directly to the ships or vessels.
The ships addressed in Public Document 91-34 (and the ship addressed in the September 30, 1993, private ruling to the Taxpayer's affiliate), satisfy all of these criteria. The ships in the instant case do not. Although the ships ply the high seas, I see no indication that they engage in the specified intercoastal trade or foreign trade between Virginia ports and ports outside Virginia. Also, the contested items in this case are not delivered directly to the Taxpayer's ships, but are rather delivered by vendors to the Taxpayer's Virginia warehouse for subsequent shipment to foreign ports. Accordingly, those supplies which are not used directly in the Taxpayer's repair activities are properly assessed.
The assessment will be returned to the audit staff and revised in accordance with this determination. If you have any questions, please contact ***** in the department's Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/25850I
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 1995 through February 1998. I apologize for the delay in responding to your letter.
FACTS
Under a contract with the U.S. Navy, the Taxpayer operates and maintains oceanic vessels that are public vessels of the United States government. The mission of the ships, to collect oceanographic and hydrographic data worldwide, is conducted by government personnel aboard ship. The data is delivered to federal government facilities and is subsequently used to prepare maps, charts, and other documents.
The contract requires the Taxpayer to perform a wide range of tasks both aboard ship and in port. The tasks include all activities necessary for the operation of the ships, including navigation, maintenance, ship repairs, and provisioning. The Taxpayer is required to provide the personnel and operational and technical support to accomplish these tasks.
The Taxpayer is also responsible to purchase and provide a wide range of equipment, tools, provisions and supplies. In addition to repair and replacement parts, the contract identifies three categories of such property:
1. Installed equipment that is affixed to the ship, including generators, anchor windlasses and winches;
2. loose equipment that is not affixed to the ship, including hand-held power tools, cleaning equipment, hand-held engineering tools, deck equipment (e.g., mooring lines and lifejackets), galley equipment (e.g., pots and pans), and safety equipment (e.g., medical equipment and fire extinguishers); and
3. consumable supplies such as paper products, linens, tableware, cleaning and plumbing supplies, nuts, bolts, etc.
Most of the property purchased by the Taxpayer during the audit period and pursuant to its contract was delivered by vendors to ports outside of Virginia. These items are not assessed. In some cases, however, repair parts and replacement items were first delivered to the Taxpayer's Virginia warehouse before being reshipped to ports overseas. The audit staff assessed tax and interest on these contested items because the Taxpayer took possession of them in Virginia.
You contend that the contested items are exempt primarily under the "ships and vessels" exemption set out in Code of Virginia § 58.1-609.3(4).
DETERMINATION
Code of Virginia § 58.1-609.3(4) provides a sales and use tax exemption for:
Ships or vessels, or repairs and alterations thereof, used or to be used exclusively or principally in interstate or foreign commerce; fuel and supplies for use or consumption aboard ships or vessels plying the high seas, either in intercoastal trade between ports in the Commonwealth and ports in other states of the United States or its territories or possessions, or in foreign commerce between ports in the Commonwealth and ports in foreign countries, when delivered directly to such ships or vessels; or tangible personal property used directly in the building, conversion or repair of the ships or vessels covered by this subdivision ....
In Public Document 91-34, the department determined that a vessel performing offshore research for the United States Navy was engaged in interstate or foreign commerce and, therefore, qualified for this exemption. In Public Documents 97-36 (1/27/97) and 00-88 (5/17/2000), the department determined that an exemption is available for component parts of a ship or vessel and further determined that a component part must be permanently affixed to the ship or vessel. Items such as life rafts, life vests and life buoys, portable heaters, and ropes and slings constitute supplies and are not component parts because they are not permanently attached to the ship's structure.
The Taxpayer's activities in this case are similar to those addressed in Public Document 91-34. As in that case, the Taxpayer's contract with the United States Navy is a maritime business venture that qualifies as "foreign commerce" as set out in the statute. Accordingly, the Taxpayer's ships in this case qualify for the "ships and vessels" exemption because the ships are "used exclusively or principally in interstate or foreign commerce."
The Taxpayer's purchases of installed equipment are exempt under the exemption because these items constitute component parts. In addition, repair parts, replacement parts and other tangible personal property used directly in the building, conversion or repair of the ships and vessels in this case are exempt from the tax and will be removed from the assessment.
In order to qualify for the exemption for supplies (other than supplies used directly in building, conversion or repair activities), the ship or vessel must satisfy three criteria:
The ship or vessel must ply the high seas;
either in intercoastal trade between ports in Virginia and ports in other states or in foreign commerce between ports in Virginia and ports in foreign countries; and
the supplies are delivered directly to the ships or vessels.
The ships addressed in Public Document 91-34 (and the ship addressed in the September 30, 1993, private ruling to the Taxpayer's affiliate), satisfy all of these criteria. The ships in the instant case do not. Although the ships ply the high seas, I see no indication that they engage in the specified intercoastal trade or foreign trade between Virginia ports and ports outside Virginia. Also, the contested items in this case are not delivered directly to the Taxpayer's ships, but are rather delivered by vendors to the Taxpayer's Virginia warehouse for subsequent shipment to foreign ports. Accordingly, those supplies which are not used directly in the Taxpayer's repair activities are properly assessed.
The assessment will be returned to the audit staff and revised in accordance with this determination. If you have any questions, please contact ***** in the department's Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/25850I
Rulings of the Tax Commissioner