Tax Type
Retail Sales and Use Tax
Description
Is Governmental Exemption Applicable to Third Parties?
Topic
Exemptions
Property Subject to Tax
Date Issued
08-01-2001
August 1, 2001
Re: Ruling Request: Retail Sales and Use Tax
Dear *****
This is in response to your letter of June 15, 2001, regarding the construction and operation of an open-air performing arts center owned by the ***** (the "Authority").
FACTS
In cooperation with the ***** (the "City"), the Authority proposes to build an open-air performing arts center (the "Facility") at a downtown waterside location. The Facility will remain open during April through October of each year and will provide a venue for musical and theatrical events available to the public. In addition, the Facility will be available for a number of community events that are sponsored by the City.
The Facility is designed as an amphitheater consisting primarily of an open-air arena with a stretched fabric roof covering. I understand there is permanent seating for about 3,500 spectators and additional room for 3,000 on the lawn area. The facility also includes a stage, curtains, three modular buildings and kitchen equipment (for the Facility's food concession).
The Facility will be owned by the Authority, and the Authority has employed the City to act as purchasing agent for the construction project, with full authority to bind the Authority's credit for the items purchased for the project. Those items will be financed via facility revenue bonds, and the Authority and the City are solely liable for the obligations under those bonds.
Although owned by the Authority, the Facility will be managed by a third party. The third party is a private entity that will (1) act as booking agent and promoter for the Facility, and (2) provide day-to-day management of the Facility. This latter function will include routine maintenance, concession sales and merchandise sales. Capital improvements and capital maintenance (not including routine and day-to-day maintenance) will be the responsibility of the Authority. Further, the City Manager will act as the agent for the Authority regarding determinations affecting the operation of the Facility. For example, the City Manager is responsible for ensuring that the events held at the Facility provide a diverse mix appealing to the City's many segments and that those events are consistent with the City's standards of decency.
You raise two issues regarding the construction and operation of the Facility. First, you ask if the equipment purchased for constructing, furnishing and operating the facility is exempt from taxation pursuant to the "governmental" exemption set out in Code of Virginia § 58.1-609.1(4). Second, you ask if the Authority is entitled to the sales tax revenues generated at the Facility pursuant to Code of Virginia § 58.1-608.3.
RULING
Purchases
Code of Virginia § 58.1-609.1(4) provides an exemption from the tax for:
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- Tangible personal property purchased for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States .... Further, this exemption shall not apply to tangible personal property which is acquired by the Commonwealth or any of its political subdivisions and then transferred to private businesses for their use in a facility or real property improvement to be used by a private entity or for nongovernmental purposes ....
The Facility in the instant case is a government-owned facility owned and operated for the public good. Accordingly, tangible personal property purchased by the Authority or the City (both of which are political subdivisions of the Commonwealth) may be purchased exempt of the tax. As set out in Title 23 of the Virginia Administrative Code ("VAC") 10-210-690, sales to the Commonwealth are exempt provided that the purchases are pursuant to official orders to be paid out of public funds. As you note in your letter, these provisions are discussed in detail in Public Document 98-13 (1/30/98).
However, the exemption will not extend to purchases by the third-party manager of the Facility. Maintenance materials or other tangible personal property purchased by the third-party manager are for that entity's own use or consumption in providing facility management services to the Authority. In this regard, see 23 VAC 10-210-693.
Sales tax revenues
Code of Virginia § 58.1-608.3 provides that under certain circumstances, specific municipalities (defined by population brackets) are entitled to all sales tax revenues generated by transactions taking place at "public facilities" owned by those municipalities. Further, the sales tax revenues must be applied to the repayment of bonds issued to pay the costs of the public facility. For purposes of this entitlement, a "public facility" is defined to include:
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- any auditorium, coliseum, convention center, or conference center, which is owned by a Virginia county, city, town, authority, or other public entity and where exhibits, meeting, conferences, conventions, seminars, or similar public events may be conducted; ...
Although the City meets the population requirements set out in this statute, I do not agree that the open-air amphitheater is a "public facility" as defined above. Further, the intent of the General Assembly was to provide sales tax revenue to repay the bonds associated with the Portsmouth Hotel and Conference Center. As noted in the department's Fiscal Impact Statement prepared for House Bill 161, the appropriation and the department's administrative costs associated with this legislation were provided to the legislature only in connection with the Portsmouth Hotel and Conference Center. To expand the sales tax entitlement to other facilities would require specific action by the General Assembly.
I trust this information addresses your concerns. Please call ***** at ***** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/35063
Rulings of the Tax Commissioner