88-18 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Leased barge used to move employees; Dredging business

Topic

Taxability of Persons and Transactions

Date Issued

01-04-1988

January 4, 1988

Re: § 58.1-1821 Application/Sales and Use Tax

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

This will reply to your letter of September 10, 1987, in which you submit an application for correction of sales and use tax assessed to ***************as the result of a recent audit.

FACTS

***********(Taxpayer) is engaged in the performance of dredging contracts. A recent audit of the taxpayer produced an assessment for its failure to remit the sales and use tax on the lease of barges used in the performance of a dredging contract for a private corporation. The contract called for the taxpayer to dredge a channel leading from the corporation's concrete plant to the main channel of the U. S. Intercoastal Waterway.

The taxpayer contests the above assessment, contending that the leased barges were engaged in interstate or foreign commerce while used in the dredging of navigable waters.

DETERMINATION

§ 58.1-608.11 of the Code of Virginia provides an exemption from the sales and use tax for:

- Ships or vessels 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...

Traditionally, the department has interpreted this statute to provide an exemption for dredges and attendant vessels (such as barges upon which silt from the dredging process is loaded) when they are engaged in the dredging of interstate waterways. The exemption does not apply, however, to fuel or supplies used on such vessels inasmuch as they do not "ply the high seas" between ports in Virginia and ports in other states or nations as is required under the statute.

It is not apparent in this instance that the barges in question were used in the actual dredging of silt. Rather, the barges were apparently used to move employees, material, equipment, trash, etc., to and from the dredging site. Barges used in this manner would not be deemed to be used in interstate or foreign commerce as they are not physically involved in the dredging of an interstate waterway.

Furthermore, it is not apparent that the contract in question entailed the dredging of an interstate waterway. The contract involved the dredging of channel for use by a private corporation engaged in the production of concrete. Although the dredging took place generally within navigable waters of the United States, the taxpayer has not demonstrated that the channel is itself an interstate waterway, i..e., a channel used by vessels engaged in interstate or foreign commerce as opposed to intrastate commerce.

Based upon the foregoing, I must deem the assessment issued to the taxpayer to be correct and payable in full.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner