Tax Type
Retail Sales and Use Tax
Description
Exempt Property for Maritime Services Provider
Topic
Property Subject to Tax
Date Issued
06-22-2001
June 22, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter requesting correction of the use tax assessment issued to ***** (the "Taxpayer") as a result of an audit. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is engaged in towing operations. It transports products along intercoastal waterways between ports in Virginia and other states and traverses waters of the Atlantic Ocean within the territorial limits. It is my understanding that the Taxpayer is not insured to ply the high seas, i.e., that portion of the ocean beyond the territorial jurisdiction of the United States.
An audit for the period November 1993 through September 1999 resulted in the assessment of use tax on purchases of tangible personal property used or consumed in the Taxpayer's operations. The Taxpayer contests several items held in the audit.
The Taxpayer takes exception to the use tax assessed on charts, wire rope, cables, shackles, and pollution spill kits used aboard the Taxpayer's vessels. The Taxpayer indicates that these items are safety materials required by federal statute and replaced at intervals set by law or regulation and maintains that an exemption should apply in these instances.
As further basis for claiming exemption, the Taxpayer indicates that it is engaged in interstate trade and required to pay quarterly federal excise taxes on fuel for using intercoastal waterways. The Taxpayer notes that States are precluded from setting and enforcing different standards than the U. S. Congress, based on the United States Supreme Court decision in Intertanko v. Locke (No. 98-1701, 3/6/00). For these reasons, the Taxpayer maintains that the items at issue should be exempt from the tax.
DETERMINATION
Code of Virginia § 58.1-609.3(4), copy enclosed, provides an exemption from the sales and use tax for:
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- 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. This exemption shall include dredges, their supporting equipment, attendant vessels, and fuel and supplies for use or consumption aboard such vessels, provided the dredges are used exclusively or principally in interstate or foreign commerce. (Emphasis added.)
In order to qualify for the "supplies" exemption (other than supplies used directly in building, conversion or repair activities, or supplies used or consumed aboard dredges and their attendant vessels), three criteria must be satisfied:
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- The ship or vessel must ply the high seas;
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- the ship's activity must be 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
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- the supplies are delivered directly to the ships or vessels.
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The exemption for supplies is narrower than the exemption for repairs. Although the Taxpayer is exempt on ship or vessel repairs because it engages in interstate commerce, it does not qualify for the "supplies" exemption because the Taxpayer does not ply the high seas.
In addition, Public Document 97-36 (01/27/97; copy enclosed) specifically sets out that equipment required by federal, state, or local law or regulation is not, by itself, dispositive that an exemption applies. Nor does the above cited exemption specifically exempt equipment required by federal, state, or local law or regulation.
Federal Excise Taxes
The Virginia Retail Sales and Use Tax Act provides no exemption or exclusion for those required to pay a federal excise tax. Nor am I aware of any federal mandate restricting Virginia or the States in general from imposing a sales or use tax on persons required to pay federal excise taxes. Absent evidence to the contrary, payment of a federal excise tax does not immunize the Taxpayer from the liability of the Virginia retail sales and use tax.
Intertanko v. Locke
Intertanko is concerned whether the United States has pre-emptive force over state regulations governing tanker operations and design despite comprehensive federal regulations governing oil tankers. Intertanko, however, does not address any issues, rules or laws pertaining to State taxation. Thus, Intertanko has no bearing upon the sales and use tax issues presented in the instant case.
Instead, I would note that the United States Supreme Court decision in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), is directly on point. This court decision "rejected the proposition that interstate commerce is immune from state taxation" and upheld a state sales tax assessed against an interstate business. The court reaffirmed this rule in deciding D. H. Holmes Co., Ltd. v. Shirley McNamara, 486 U.S. 24, 108 S.Ct. 1619 (1988), and recognized that, with certain restrictions, interstate commerce may be required to pay its fair share of State taxes. Consequently, these decisions show that the States are not barred by the federal constitution from taxing equipment or supplies used in interstate or foreign commerce.
Conclusion
Based on the foregoing, the assessment of use tax on the items at issue is correct. The Taxpayer will soon receive a bill for the current outstanding liabilities of *****. To preclude further interest charges, full payment should be made within 45 days of the date of this letter.
If you have any questions about this response, please contact ***** of the department's Office of Tax Policy at ******. .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/30902R
Rulings of the Tax Commissioner