Tax Type
Retail Sales and Use Tax
Description
Public Service Corporations; Weed Control Equipment and Materials
Topic
Taxability of Persons and Transactions
Date Issued
04-03-1991
April 3, 1991
Re: §58.1-1821 Application: Retail Sales and Use tax
Dear***********************
This will reply to your letter of August 23, 1990, seeking correction of sales and use tax assessments on behalf of your client, **********("the Taxpayer").
FACTS
The Taxpayer is a public service corporation subject to a state franchise or license tax based upon gross receipts, which provides electrical power to its customers. An audit of the Taxpayer for the period April 1986 through March 1989 produced assessments for the Taxpayer's failure to remit the sales and use tax on various purchases of tangible personal property.
The Taxpayer contests the assessments of tax on equipment and materials used in weed control to maintain right of ways under power lines and around poles and substations, contending that the property is used directly in the rendition of its public utility service. The items at issue include brush cutters, bar saws, parts for bush hogs and mowers, chainsaws, bar oil, and vegetation management chemicals. In addition, in a prior letter to the department, the Taxpayer asserted that one of the charges included in the audit represented a charge for the provision of weed spraying services rather than the purchase of chemicals for weed control.
DETERMINATION
Va. Code §58.1-608(3)(c) provides an exemption from the sales and use tax for:
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- Tangible personal property sold or leased to 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...
The above statute provides that tangible personal property must be used directly in the rendition of a utility's public service in order to gain the exemption. Interpreting the statute, Virginia Regulation (VR) 630-10-87 provides:
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- Items of tangible personal property that are used directly in the rendition of a public utility service are those which are both indispensable to the actual provision of a utility service and used or consumed immediately in the performance of such service. The fact that a particular item may be considered essential to the rendering of a public utility service because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly in the rendition of a public utility service. (Emphasis added).
Based on the above authorities, I cannot agree that the Taxpayer's equipment and materials used for brush clearing and weed control qualify for the public utility exemption. These items are not used or consumed immediately in the performance of the utility's public service; rather, the use of such items for the cutting of brush and weed control to maintain right of ways only indirectly touches on the rendition of the utility's service. Moreover, the department has previously ruled that weed control activities are not exempt under the above regulation. See the enclosed copy of P.D. 87-276 (12/23/87) on this matter. As such, I find that these items were correctly included in the department's audit.
However, further review of the audit reflects that one invoice for weed spraying services was incorrectly included in the audit. Since it represents a charge for the provision of a nontaxable service, this charge will be removed from the audit.
The audit will be adjusted in accordance with this determination and revised assessments sent as soon as practicable.
Please contact the department if you have additional questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner