Tax Type
Retail Sales and Use Tax
Description
Contractor building electric generating plant; Exemption Form ST-11A
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
11-21-1989
November 21, 1989
Re: Request for Ruling: Sales and Use Tax
Dear****************
This will reply to your letter of October 30, 1989, in which you wish to determine the application of the sales and use tax to tangible personal property purchased by a contractor for installation in an electric generating plant.
FACTS
************(Taxpayer) will be engaged in the production of electricity for sale to a Virginia public service corporation. The taxpayer is currently seeking recognition as a public service corporation from the State Corporation Commission.
The taxpayer has engaged a contractor to erect an electric generating plant and to furnish the generating and other equipment necessary for the operation of the plant. The taxpayer inquires whether its contractor may purchase exempt from the tax the tangible personal property that will be used directly in the production of electricity for sale or resale.
RULING
Pursuant to Va. Code §58.1-610, contractors are deemed to be the taxable users or consumers of any property used in connection with a real estate construction contract. The same is also true under subsection B of the statute for property furnished to a contractor upon which the tax has not previously been paid.
However, exceptions to these general rules are set forth in subsections B and E of §58.1-610 for property purchased by or furnished to a contractor that would otherwise enjoy the industrial materials exemption or one of the other industrial exemptions set forth in Va. Code §58.1-608. These industrial exemptions include the exemptions for machinery and tools used directly in industrial manufacturing or processing (Va. Code §58.1-608 3 b) and tangible personal property used directly in the rendition of a public utility service (Va. Code §58.1-608 3 c).
It is not apparent at this time whether the taxpayer will qualify for the public utility exemption as this is generally limited to "a public service corporation subject to a state franchise or license tax upon gross receipts." In any event, however, the taxpayer will qualify for the industrial manufacturing exemption, provided that more than 1/2 of the electricity produced is for sale or resale to consumers or other utilities.
As such, the taxpayer's contractor may apply to the department's Technical Services Section at P.O. Box 6-L, Richmond, Virginia 23282 for an exemption certificate, Form ST-11A. The contractor may use this certificate to purchase exempt from the tax any tangible personal property that would otherwise qualify for the industrial manufacturing exemption. If the taxpayer is subsequently recognized as a public service corporation and is subjected to the gross receipts tax by the State Corporation Commission, its contractor may also use the certificate to purchase property qualifying for the public utility exemption.
If you have any further questions relating to contractor's purchases, please do not hesitate to contact the department's Technical Services Section.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner