92-189 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

HVAC and electrical equipment; ST-11-A ; Daily newspaper company

Topic

Exemptions

Date Issued

09-29-1992

September 29, 1992

Re: Request for Ruling: Sales and Use Tax

Dear******************

This will reply to your letter of June 27, 1991 in which you seek a ruling as to the sales and use tax application to various equipment being installed at the production plant of *************(the Taxpayer).

FACTS

The Taxpayer, a daily newspaper company, is constructing an administrative and production facility. This project requires the purchase of tangible personal property by both the Taxpayer and various contractors hired by the Taxpayer for this project. Much of the equipment being purchased is used in a dual capacity as set forth below.

HVAC Equipment:

- Such equipment includes hot water boilers, ductwork, chillers, air handling units, cooling towers, and piping. This equipment will be used to regulate both the temperature and the humidity in the facility. The majority of the use will be to maintain temperature and humidity within the production area of the facility. The temperature and humidity has to meet specific ranges in order for the production machinery to operate properly and maintain the quality of the newspaper. This equipment is also used to a lesser degree in climate control in nonproduction areas.

Electrical Equipment:

- Such equipment includes transformers, unit substations, electrical panels, emergency generators, motor control centers, switch gears, wiring, high voltage cable, conduit, network protectors, and an uninterruptible power supply system. These items will provide for the flow of electricity into all areas of the facility, both production and administration.

The Taxpayer is requesting a ruling as to the sales and use tax application to the equipment in question.

RULING

Virginia Regulation (VR) 630-10-63(A) (7) provides a sales and use tax exemption for, "tangible personal property used directly in those necessary ancillary activities of newspaper and magazine printing when such activities are performed by the publisher of any newspaper or magazine for sale daily or at regular intervals not exceeding three months...". As provided above, the equipment in question is used in both an exempt manner (production) and a taxable manner (administration). VR 630-10-63 (D) addresses equipment used in a dual capacity and states the following:

- When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and the other of which is not (taxable), the sales and use tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in nonexempt activities. Likewise, the item will be totally exempt from tax if the preponderance of its use is in exempt production activities.

It should be noted that the "preponderance of use" rule is applicable when dealing with a single item of tangible personal property. In the present situation, we are dealing with both single pieces of equipment used in a dual capacity (i.e. hot water boilers, transformers, switch gears) and supplies not used in a dual capacity (i.e. ductwork, HVAC piping, wiring, cable). In those situations where a single piece of equipment is used in a dual capacity, the preponderance of use rule will apply. However, supplies which are used either in a taxable manner or an exempt manner must be prorated depending on their use.

The Taxpayer may purchase equipment and supplies used directly in manufacturing exempt under a manufacturer's exemption certificate, Form ST-11. However, a contractor must obtain a project exemption certificate, Form ST-11A, in order to purchase exempt equipment for a specific job. Form ST-11A's are issued on a per job basis and may be obtained by submitting a request in writing to; Taxpayer Assistance Section, Office of Taxpayer Services, P.O. Box 1880, Richmond, Virginia 23282-1880. Provided the exempt project is already completed, refunds of taxes paid may be obtained directly from the supplier upon the issuance of a valid exemption certificate.

If you should have any questions, please feel free to contact the department.

Sincerely,

W. H. Forst
Tax Commissioner

OTP/5302K

Rulings of the Tax Commissioner