Tax Type
Retail Sales and Use Tax
Description
Electricity production; Manufacturing exemption
Topic
Exemptions
Date Issued
05-15-1991
May 15, 1991
Re: Request for Ruling: Sales and Use Tax
Dear*****************
This will reply to your letter of December 11, 1990 in which you request a ruling on behalf of your client, *****************("the Taxpayer"), on the application of the sales and use tax to machinery and equipment used in the production and distribution of electricity.
FACTS
The Taxpayer is a partnership formed for the purpose of constructing, owning, and operating a facility to produce electricity for sale to a Virginia public service corporation.
The Taxpayer requests a ruling whether the partnership or any of its partners will be subject to the sales and use tax on purchases of tangible personal property used in the production and distribution of electricity. The Taxpayer also asks whether the tax would apply to purchases made by contractors and subcontractors in connection with construction of the production facility.
RULING
The Taxpayer is not a public service corporation subject to a state franchise or license tax upon gross receipts. Therefore, it will not qualify for the public utility exemption set forth in Va. Code §58.1-608(3)(c); however, it will qualify for the industrial manufacturing exemption under Va. Code §58.1-608(3)(b).
Please find enclosed copies of rulings issued by the department, P.D. 86-218 (11/3/86) and P.D. 89-350 (12/20/89), dealing with a similar situation. In addition, enclosed is a copy of Virginia Regulation (VR) 630-10-63 which interprets the industrial manufacturing and processing exemption.
Consistent with the above rulings and based on the information presented in your letter, neither the Taxpayer nor its partners would be subject to the sales and use tax upon the purchase of tangible personal property used directly in the production of electricity for sale. However, tangible personal property used in the distribution of electricity would be taxable. Similarly taxable would be items used in the repair, servicing, and maintenance of production machinery and items used indirectly in production. See section C.2 of VR 630-10-63 for examples of taxable and exempt items. Replacement parts for exempt machinery would be exempt.
In addition, as provided in the rulings, the Taxpayer's contractors and subcontractors may apply to the department for exemption certificates to purchase exempt from the tax any tangible personal property that would otherwise qualify for the industrial manufacturing exemption. However, the exemption would not extend to machinery and tools used in construction of the plant or construction materials such as concrete, structural steel, and roofing which become permanently incorporated into the production plant.
I hope this answers your questions, but let the department know if you need any additional information.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner