Tax Type
Retail Sales and Use Tax
Description
Cogeneration facility; Steam and electricity sales
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
10-25-1989
October 25, 1989
Re: Request for Ruling/Sales and Use Tax
Dear***********
This will reply to your letter dated February 24, 1989 in which you request a ruling on behalf of ************* (the "Taxpayer") as to the applicability of the Virginia retail sales and use tax to its business.
FACTS
The Taxpayer develops and manages cogeneration facilities in several states throughout the United States. In Virginia, the Taxpayer and its affiliates are at various stages in the process of obtaining appropriate approvals for constructing and operating four cogenerator facilities. Each cogenerator facility will sell electricity to the local electric utility, and steam to a local manufacturer for use in its production process and, to a small degree, for space heating.
The Taxpayer requests a ruling regarding its own and its customers' liability for the Virginia sales and use tax, both with respect to the electricity it will sell to public electric utilities and the steam it will sell to industrial users.
RULING
I will address each of the issues on a separate basis below:
Taxpayer's liability
I have enclosed a copy of a ruling which sets forth the application of the sales and use tax to cogenerators. As you will note in the ruling, the production of steam and electricity for sale to others is deemed to be industrial in nature. Thus, the Taxpayer is entitled to the industrial manufacturing and processing exemption (Virginia Code §58.1-608(3)(b)).
Sale of electricity
Virginia Code §58.1-608(3)(c) provides an exemption from the sales and use tax for "[t]angible personal property sold or leased to (i) a public service corporation subject to a state franchise or license tax upon gross receipts,...for use or consumption by such corporation...directly in the rendition of its public service...." Thus, the electricity sold by the Taxpayer to a public service corporation which is subject to the state franchise or license tax upon gross receipts for resale to the final consumer would be exempt from the sales and use tax.
Sale of steam
Virginia Code §58.1-608(1)(c) exempts from the sales and use tax "[g]as, electricity, or water when delivered to consumers through mains, lines, or pipes." Additionally, Virginia Retail Sales and Use Tax Regulation 630-10-63 provides that the retail sales and use tax does not apply to "[g]as, electricity or water received through mains, lines, or pipes" when used or consumed by an industrial manufacturer or processor of products for sale or resale.
Since steam is the vapor phase of water, the Taxpayer's customers may purchase the steam exempt of the tax as set forth above.
If you have any further questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner