Tax Type
Retail Sales and Use Tax
Description
Spaceport exemption, government contractors
Topic
Exemptions
Date Issued
08-14-2002
August 14, 2002
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter of April 22, 2002, concerning the application of the retail sales and use tax to space flight activities performed by ***** (the "Taxpayer").
FACTS
The Taxpayer has entered into a contract with the National Aeronautics and Space Administration ("NASA"), an agency of the federal government, to manage NASA's Sounding Rocket Program (the "Program"). The Program utilizes suborbital rockets to conduct scientific missions for the study of earth and space environments.
Pursuant to this contract, the Taxpayer will manage and be responsible for providing all services and supplies (other than government-owned property) to implement the Program. To this end, the Taxpayer will design, fabricate, integrate and perform flight qualification testing of suborbital payloads; provide launch vehicles and associated hardware, and provide activities associated with subsequent mission launch operations.
I understand that many of the Taxpayer's activities, including its manufacturing and assembly plant, are located in Virginia at NASA's Wallops Flight Facility located on Wallops Island. Accordingly, you ask how the Program relates to the "spaceport exemption" set out in Code of Virginia § 58.1-609.3(13).
DETERMINATION
Government Contractors Generally
The application of the tax to government contracts is set out in Title 23 of the Virginia Administrative Code (VAC) 10-210-693. This regulation indicates that the appropriate tax treatment of government contractors is based on whether the contract is for the sale of tangible personal property or for the provision of services.
If the contract is for the sale of tangible personal property to the government, the contractor may purchase such property exempt from the tax for resale. The subsequent sale of the property to the government is exempt from the tax under Code of Virginia § 58.1-609.1(4). Conversely, if the contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing those services, even though title to some or all of the property may pass to the government, or the contractor may be fully and directly reimbursed by the government, or both. If a particular contract involves both the provision of a service and the transfer of tangible personal property, the department relies on the true object test set out in 23 VAC 10-210-4040 to determine whether the contract constitutes a sale of tangible personal property or the provision of a service.
The contract documents you provided with your correspondence indicate that the Taxpayer will be providing services to the federal government. As such, the Taxpayer is deemed to be the taxable user and consumer of all tangible personal property it purchases to provide those services. However, the tax will not apply to property purchased by the federal government (even if that property is subsequently provided to the Taxpayer). Nor will the tax apply to purchases if the Taxpayer is designated as NASA's official purchasing agent and NASA's credit is bound. This issue is addressed in 23 VAC 10-210-410(J).
Space Flight Activity
Based on the above, it appears that the Taxpayer, acting as a government services contractor, will be required to pay the sales and use tax on its Program purchases. However, Code of Virginia § 58.1-609.3(13) provides an exemption from the retail sales and use tax, as follows:
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- From July 1, 1997, and ending July 1, 2011, (i) the sale, lease, use, storage, consumption, or distribution of an orbital or suborbital space facility, space propulsion system, space vehicle, satellite, or space station of any kind possessing space flight capability, including the components thereof, irrespective of whether such facility, system, vehicle, satellite, or station is returned to this Commonwealth for subsequent use, storage or consumption in any manner when used to conduct spaceport activities; (ii) the sale, lease, use, storage, consumption or distribution of tangible personal property placed on or used aboard any orbital or suborbital space facility, space propulsion system, space vehicle, satellite or space station of any kind, irrespective of whether such tangible personal property is returned to this Commonwealth for subsequent use, storage or consumption in any manner when used to conduct spaceport activities; (iii) fuels of such quality not adapted for use in ordinary vehicles, being produced for, sold and exclusively used for space flight when used to conduct spaceport activities; (iv) the sale, lease, use, storage, consumption or distribution of machinery and equipment purchased, sold, leased, rented or used exclusively for spaceport activities and the sale of goods and services provided to operate and maintain launch facilities, launch equipment, payload processing facilities and payload processing equipment used to conduct spaceport activities.
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- For purposes of this subdivision, "spaceport activities" means activities directed or sponsored at a facility owned, leased, or operated b or on behalf of the Virginia Commercial Space Flight Authority.
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- The exemptions provided by this subdivision shall not be denied by reason of a failure, postponement or cancellation of a launch of any orbital or suborbital space facility, space propulsion system, space vehicle, satellite, or space station of any kind or the destruction of any launch vehicle or any components thereof. (Emphasis added.)
As set out in the statute, the exemption is triggered by activities "directed or sponsored" at a Virginia Commercial Space Flight Authority ("VCSFA") facility. In this case, the Taxpayer provides manufacturing and launching services at NASA's facility on Wallops Island. Neither the manufacturing nor the launching activities, by themselves, appear to meet the definition of "spaceport activities" in the statute. This is because the Taxpayer's manufacturing and launching are not performed at a facility "owned, leased, or operated by or on behalf of VCSFA.
VCSFA operates the Virginia Space Flight Center located on Wallops Island. The Virginia Space Flight Center offers a wide range of facilities, including two fully equipped launch pads and a number of support buildings. Services provided at the Virginia Space Flight Center include payload processing and integration, pre- and post-flight processing, hazardous processing services, laboratory testing, machine shop services, etc. Activities directed or sponsored at this facility qualify for the exemption.
It appears that the Taxpayer will eventually be providing its products and services for specific mission launch operations on behalf of specific customers. It is conceivable that these specific launch operations may qualify for the exemption. In this regard, specific space launch operations that are directed by or sponsored by VCSFA at the Virginia Space Flight Center, or at other facilities "owned, leased, or operated by or on behalf of the Virginia Commercial Space Flight Authority" will qualify for the "spaceport activities" exemption. I understand that VCSFA has developed criteria governing its sponsorship of spaceport activities at Wallops Island. These criteria, and indeed the entire sponsorship process, is under VCSFA's jurisdiction. Any applications for sponsorship, or questions concerning the sponsorship process, can best be answered by VCSFA.
Keep in mind that the exemption is not dependent on VCSFA sponsoring the actual launch. For example, VCSFA may sponsor pre-flight services for a launch conducted outside Virginia. Regardless that the launch itself is not from Virginia, the VCSFA-sponsored pre-flight services qualify as "spaceport activities" for purposes of the exemption.
I trust that this information is helpful. If you have any questions regarding this letter, please contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****. Again, questions regarding VCSFA sponsorship are best directed to that agency at www.vaspace.org.
The Code of Virginia and regulations cited above are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/40340i
Rulings of the Tax Commissioner