86-249 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Ocean-going hospital vessel

Topic

Taxability of Persons and Transactions

Date Issued

12-08-1986

December 8, 1986

Re: Virginia Code §58.1-1821 Application Sales and Use Tax

Dear ***************

This is in reply to your letter of March 13, 1986 in which you apply for correction of the sales tax assessment issued to your client, ************* (Corporation).

FACTS

Corporation is a Virginia corporation which specializes in machine work and fabrication. The contested assessment resulted from the charge for repair work performed by Corporation on a vessel that, after repairs, is to be used exclusively and principally for delivery of medical supplies and services to the islands of the French West Indies. The repair work was performed in Virginia and Corporation tendered delivery of the vessel in Virginia to an agent of the owner of the vessel.

You contend that the charge for the repair of the vessel is exempt from the tax under the exemption granted under Virginia Code §58.1-608.11 for:

- Ships or vessels used or to be used exclusively or principally in interstate commerce or foreign commerce, or repairs and alterations thereof... (Emphasis added).

You have suggested that "foreign commerce" refers to commerce other than commerce between Virginia and ports in foreign countries. Furthermore, you point out that the courts have defined "foreign" as "belonging to or relating to another sovereignty or domain".

DETERMINATION

We do not disagree with your definition of the word "foreign"; however, we find that when "foreign" is joined with "commerce" a more specific definition is required. In interpreting the above portion of Virginia Code §58.1-608.11, it is imperative to consider the basis for this exemption.

The power to regulate (thus tax) foreign commerce is reserved to the Congress under Article 1, Section 8, Clause 3 of the United States Constitution.

- "The Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

These words have been interpreted to "comprehend every species of commercial intercourse between the United States and foreign nations. No sort of trade can be carried on between this country and any other, to which this power does not extend." Gibbons v. Ogden, 9 Wheat. 1, 193, 6 L. Ed. 23.

It is this constitutional grant of power to Congress that is the basis for Virginia's exemption from the retail sales and use tax for:

- Ships or vessels used or to be used exclusively or principally in interstate commerce or foreign commerce, or repairs and alterations thereof... (Emphasis added).

Based upon this interpretation of the exemption granted under Virginia Code §58.1-608.11, "foreign commerce" must be defined in the context of Article 1, § 8, Clause 3 of the Constitution. As defined in Black's Law Dictionary (5th ed.), it means, "Trade between persons in the United States and those in a foreign country".

Based upon the information you have provided about the use of the vessel repaired by Corporation, it does not appear that it will be engaged in "Trade between persons in the United States and those in a foreign country". As you state in your application for correction, it will be used "exclusively or principally for the delivery of medical supplies and services to the islands of the French West Indies". Therefore, your application for correction is denied and the instant assessment is properly due and payable.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner