Tax Type
Retail Sales and Use Tax
Description
Purchases or Consumption by Operator of Government Airport
Topic
Taxability of Persons and Transactions
Date Issued
11-19-1991
November 19, 1991
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear**************
This will respond to the letter we received on your behalf from the********* (the "Authority) dated July 22, 1991 and follow-up letter of July 23, 1991 seeking correction of a sales and use tax assessment to your company (the "Taxpayer") for the tax period May 1985 through August 1989.
FACTS
The Taxpayer contracted with the federal government to manage and operate the parking facilities at ******************(the "airport"). The government's rights and obligations under the contract were transferred to the Authority on June 7, 1987, the date on which the Authority assumed control over the airport. The Authority maintains that since the purchases at issue in the assessment were made with parking lot revenues owned by the government and subsequently the Authority, they should not be taxable.
Under the contract, the Taxpayer is obligated to collect all parking revenues on behalf of the government/Authority. It keeps a contractually specified portion for itself as compensation and the remaining amount is deposited with the airport. The Authority maintains that while the Taxpayer handles the revenues, they are considered at all times to be the revenues of the airport. All purchases by the Taxpayer must be specifically approved by the airport prior to the making of the purchase. Title to the purchases passes from the vendor directly to the airport. However, the Taxpayer is given the right to use the purchased item during the term of its contract.
The Authority maintains that since the government owned and operated the airport during the 1985-1986 period, the airport revenues were federal funds and thus purchases made by the Taxpayer with such were exempt from the tax. In addition, it maintains that from June 1987 forward the purchases should also be exempt because they were paid for with the Authority's funds. The Authority is not required to pay any taxes or assessments upon the airports or property acquired or used by the Authority pursuant to Chapter 598, 1985 Virginia Acts of Assembly.
The Authority also seeks advice as to whether future purchases by the Taxpayer or successor contractor are subject to state and local taxation.
DETERMINATION
Va. Code §58.1-608(A)(1)(e) provides an exemption from the sales tax for "[t]angible personal property for use or consumption by ...the United States." Virginia Regulation (VR) 630-10-27(J) explains, however, that this exemption is only available when "the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such government entity."
In addition, VR 630-10-45(E) provides:
-
- [p]ersons who contract with the federal government, the State or its political subdivisions to perform a service and in conjunction therewith furnish some tangible personal property are deemed to be the consumers of all such property and are not entitled to exemption on the grounds that a governmental entity is a party to the contract. This is true even though title to the property provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government.
- [p]ersons who contract with the federal government, the State or its political subdivisions to perform a service and in conjunction therewith furnish some tangible personal property are deemed to be the consumers of all such property and are not entitled to exemption on the grounds that a governmental entity is a party to the contract. This is true even though title to the property provided may pass to the government and/or the contractor may be fully and directly reimbursed by the government.
While the government and the Authority exercised a high degree of control over the Taxpayer's purchases which were held taxable in the assessment, and the Taxpayer used government and Authority funds to pay for its purchases, from a review of the contract recently submitted, I see no evidence that the government's or the Authority's credit was bound when such purchases were made. Nor do I see evidence that the Taxpayer was designated the purchasing agent of the government or the Authority. At all times relevant to the assessment the Taxpayer remained a distinct corporate entity pursuing private commercial ends for profit. Based upon these facts, I see nothing to distinguish this case from Forst or the U. S. Supreme Court's decision in United States v. New Mexico, et. al., 455 U.S. 720, 102 S. Ct. 1371 (1982), both of which are directly on point.
Accordingly, the assessment is correct and no refund will be issued to the Taxpayer.
Please note that in the future, provided the terms of the contract do not change the Taxpayer or subsequent contractor with the Authority will be required to pay sales tax or remit use tax on tangible personal property purchased for use in managing and operating the parking facilities.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5385H
Rulings of the Tax Commissioner