Tax Type
Retail Sales and Use Tax
Description
Delivery to foreign naval vessels in Virginia waters
Topic
Taxability of Persons and Transactions
Date Issued
03-31-1987
March 31, 1987
Re: Ruling Request/ Sales and Use Tax
Dear ***************
This will reply to your letter of July 29, 1986 and supplementary information received by the department by letter dated November 24, 1986, seeking a ruling on the correct of the retail sales and use tax to sales made by ********* (taxpayer), to a foreign government.
FACTS
The taxpayer is a Virginia corporation with sales at the present time solely to a specific foreign government. According to the taxpayer, the materials being sold at this time include engine parts, gauges and meters, welding machines, compressors and cranes, for use on board naval vessels of the foreign government. Delivery of such materials is made directly to the naval vessels while in Virginia ports, either by common carrier direct from the manufacturer, or in one of the taxpayer's own delivery vehicles.
The taxpayer states further that all such materials being purchased by the foreign government are either for use on board the vessels to which they are delivered, while still in Virginia ports, or for transport back to the foreign country for use on vessels there.
The taxpayer contends that since all of the materials being sold are being delivered directly to the sovereign property of a foreign government, such sales should qualify for the interstate commerce exemption from the sales and use tax under Section §58.1-608(20), formerly §58-441.6(r) of the Virginia Code.
RULING
Section 58.1-608(20) of the Virginia Code provides an exemption from the sales and use tax for the "[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth. Delivery of goods destined for foreign export to a factor or export agent shall be deemed to be delivery of goods for use or consumption outside of the Commonwealth."
Section 630-10-51 of the Virginia Retail Sales and Use Tax Regulations, (copy enclosed), explains however that, "a sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia."
This regulation section then provides four examples of transactions in interstate and foreign commerce to which the tax does not apply:
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- 1. The sale of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle:
2. The sale of tangible personal property delivered to the purchaser outside of the state by an independent trucker or contract carrier hired by the seller;
3. The sale of tangible personal property delivered by the seller to a common carrier or to the U.S. Post Office for delivery to the purchaser outside of the state,
4. The purchase of tangible personal property for resale and immediate transportation out of the state by a dealer properly registered in another state provided a valid certificate of exemption is secured by the Virginia seller.
- 1. The sale of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle:
Furthermore the naval vessels in the present case cannot be deemed to be "common carriers" within the meaning of the third example in the above referenced regulation section. A "common carrier" is defined as "[o]ne who holds himself out to the public as engaged in business of transportation of persons or property from place to place for compensation, and who offers services to the public generally." Black's Law Dictionary, Fifth Edition.
Accordingly, the sale of tangible personal property in the present case does not qualify for exemption from the tax as a sale in interstate or foreign commerce, since delivery of the items to the foreign government vessels occurs entirely within the territorial limits of Virginia.
In addition, the materials being sold by the taxpayer may not be deemed "tangible personal property for delivery to a factor or export agent for subsequent export to a foreign country", since in taking delivery of any of the items to be sold to the foreign government, the taxpayer acts in its own capacity and not in a representative capacity of any of the manufacturers of such materials.
Furthermore, §58.1-608(11), formerly §58-441.6(i) of the Virginia Code grants an exemption for:
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- 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 subdivision 11.
- 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 subdivision 11.
While the naval vessels in the present case might be used by the foreign government on occasion to take delivery of items purchased from the taxpayer, I cannot conclude that such vessels are used exclusively or principally in interstate or foreign commerce. Furthermore, while such vessels may be engaged in plying the high seas, they are not principally used by the foreign government in foreign commerce between ports in the Commonwealth and ports in foreign countries.
Finally, there is no general exemption from the sales tax for tangible personal property sold and delivered to a foreign government, aboard naval vessels of such government temporarily berthed in Virginia, for use aboard such vessels and/or for transport back to such vessels' home ports for use on vessels located there.
Therefore, based on the information provided, and the rule of strict construction of all exemptions from the sales and use tax, I find no basis for concluding that the tangible personal property being sold by the taxpayer to the foreign government in this case qualifies for exemption from the tax. See Winchester TV Cable Co. v. State Tax Commissioner, 217 Va. 877, 234 S.E. 2d 245 (1977)
Notwithstanding all of the foregoing, whenever the taxpayer purchases items from suppliers for resale to the foreign government in Virginia, it may purchase such items exempt of the tax, provided it gives the suppliers a certificate of exemption, (Form ST-10, copy enclosed), at the time of making such purchases indicating that the items are intended for taxable resale .
In addition, if any of the transactions being engaged in by the taxpayer are not as set forth in this ruling, the taxpayer may submit additional information to the department to determine if the tax will apply to such transactions in the same manner as those stated herein. I hope this and the enclosed information will be useful to you, but please let me know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner