Tax Type
Retail Sales and Use Tax
Description
Commercial vessels; Interstate commerce; Fuel and supplies; Applicability to charter fees and items sold
Topic
Exemptions
Date Issued
04-30-1985
April 30, 1985
Dear ****
This will reply to your letter of December 10, 1984 in which you submit a request for a ruling on the applicability of the sales and use tax to a vessel operated by the *****.
***** ("Taxpayer") operates a vessel for charter on the *****. Based upon a March 11, 1985 telephone conversation between yourself and a member of my staff, it is my understanding that the taxpayer's vessel will generally leave its Alexandria dock, such anchorage actually being in the waters of the District of Columbia, transport its charter party along waters belonging to the District of Columbia and Maryland and return to Alexandria with no intermediate stops at ports within the District of Columbia, Maryland, or elsewhere.
Section 58.1-608.11 of the Code of Virginia provides an exemption from the sales and use tax for the following items of tangible personal property:
Ships or vessels used or to be used exclusively or principally in interstate or foreign commerce, or repairs and alterations thereof; or 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 subsection...
In interpreting the above exemption, the department must adhere to the doctrine of strict construction of exemption statutes set forth by the Virginia Supreme Court in Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E.2d 619 (1973) and several other cases. Under a strict reading of the statute, we find an exemption is available for tangible personal used in the repair or alteration of vessels only when such vessels are used primarily in interstate or foreign commerce and for fuel and supplies used on vessels only when such vessels ply the high seas in intercoastal or foreign trade between Virginia ports and ports in other states or nations. Accordingly, we must determine here whether the taxpayer's vessel is used in interstate or foreign commerce and/or in intercoastal or foreign trade between ports in Virginia and other jurisdictions.
Although the courts have differed in their interpretations of what constitutes "interstate commerce," they have generally held that the mere entry into the waters of a state with no other activity does not constitute commerce (see Streckfus Steamers v. City of St. Louis, Mo. App., 472 S.W.2d 660). Furthermore, for interstate commerce to occur there must be some commercial interaction between people of two states. When a vessel leaves a point in one state and returns to that same point without even docking temporarily in another state, I cannot find that vessel to be engaged in interstate commerce. Accordingly, I must rule that repair and replacement parts for the taxpayer's vessel are not exempt from the sales and use tax.
Further, the taxpayer's vessel does not enjoy an exemption for fuel or supplies consumed as it is not engaged in plying the high seas between ports in Virginia and ports in other states or countries. However, as the taxpayer's vessel is docked in waters belonging to the District of Columbia and sails in waters belonging to the District of Columbia and Maryland, the taxpayer will not be required to collect the Virginia sales tax on charter fees or any item sold on the vessel.
Sincerely,
W. H. Forst
Tax Commissioner
Dear ****
This will reply to your letter of December 10, 1984 in which you submit a request for a ruling on the applicability of the sales and use tax to a vessel operated by the *****.
***** ("Taxpayer") operates a vessel for charter on the *****. Based upon a March 11, 1985 telephone conversation between yourself and a member of my staff, it is my understanding that the taxpayer's vessel will generally leave its Alexandria dock, such anchorage actually being in the waters of the District of Columbia, transport its charter party along waters belonging to the District of Columbia and Maryland and return to Alexandria with no intermediate stops at ports within the District of Columbia, Maryland, or elsewhere.
Section 58.1-608.11 of the Code of Virginia provides an exemption from the sales and use tax for the following items of tangible personal property:
Ships or vessels used or to be used exclusively or principally in interstate or foreign commerce, or repairs and alterations thereof; or 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 subsection...
In interpreting the above exemption, the department must adhere to the doctrine of strict construction of exemption statutes set forth by the Virginia Supreme Court in Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E.2d 619 (1973) and several other cases. Under a strict reading of the statute, we find an exemption is available for tangible personal used in the repair or alteration of vessels only when such vessels are used primarily in interstate or foreign commerce and for fuel and supplies used on vessels only when such vessels ply the high seas in intercoastal or foreign trade between Virginia ports and ports in other states or nations. Accordingly, we must determine here whether the taxpayer's vessel is used in interstate or foreign commerce and/or in intercoastal or foreign trade between ports in Virginia and other jurisdictions.
Although the courts have differed in their interpretations of what constitutes "interstate commerce," they have generally held that the mere entry into the waters of a state with no other activity does not constitute commerce (see Streckfus Steamers v. City of St. Louis, Mo. App., 472 S.W.2d 660). Furthermore, for interstate commerce to occur there must be some commercial interaction between people of two states. When a vessel leaves a point in one state and returns to that same point without even docking temporarily in another state, I cannot find that vessel to be engaged in interstate commerce. Accordingly, I must rule that repair and replacement parts for the taxpayer's vessel are not exempt from the sales and use tax.
Further, the taxpayer's vessel does not enjoy an exemption for fuel or supplies consumed as it is not engaged in plying the high seas between ports in Virginia and ports in other states or countries. However, as the taxpayer's vessel is docked in waters belonging to the District of Columbia and sails in waters belonging to the District of Columbia and Maryland, the taxpayer will not be required to collect the Virginia sales tax on charter fees or any item sold on the vessel.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner