Tax Type
Retail Sales and Use Tax
Description
Use or Storage; Modification of Equipment in Virginia
Topic
Taxability of Persons and Transactions
Date Issued
04-27-1992
April 27, 1992
Re: Sales & Use Tax
Dear****************
This will reply to your letter of October 23, 1991 seeking correction of a sales and use tax assessment for the period of July, 1987 through May, 1990.
FACTS
* * * (the Taxpayer) is primarily engaged in the business of manufacturing railroad maintenance equipment. The Taxpayer contracted with a railroad company located outside Virginia to maintain out of state rail tracks. In order to fulfill the contract, it was necessary for the Taxpayer to purchase two pieces of railroad maintenance equipment from their manufacturing plant located outside this country, which is set up as a separate corporation. The delivery of the equipment was made to Hampton Roads, Virginia. Upon delivery, it was determined that the equipment was set up to maintain European rails, i.e. European couplers. In order to continue transportation on U.S. rails to the job site, it was first necessary to equip them with domestic couplers. This modification took place at the Taxpayer's Chesapeake, Virginia plant location. As a result of delivery and modifications taking place in Virginia, the Virginia use tax was assessed on the equipment. The Taxpayer is taking exception to the taxing of the equipment on the grounds that the equipment was never "placed in service' or "first used' in Virginia, nor was it ever the Taxpayer's intention to use, store or inventory the equipment in Virginia.
DETERMINATION
Va. Code § 58.1-604 addresses the imposition of the use and states, in part, the following:
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- There is hereby levied and imposed, in addition to all other taxes and fees now imposed by law, a tax upon the use or consumption of tangible personal property in this Commonwealth, or the storage of such property outside the Commonwealth for use or consumption in this Commonwealth, in the amount of three and one-half percent:
Va. Code § 58.1-602 defines "use' as "the exercise of any right or power over tangible personal property incident to the ownership thereof.' Emphasis added.
Keeping the above in mind, Virginia Regulation (VR) 630-10-51 (copy enclosed) addresses interstate commerce and subsection B of this regulation states the following:
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- Transaction taxable in Virginia. The tax applies to the first use in Virginia of tangible personal property purchased elsewhere in a transaction which would have been taxed had the transaction occurred in Virginia, regardless of the fact that such property may have been, or may be used in interstate commerce, . . . Any tax due because of first use in Virginia may be subject to credit for like taxes paid elsewhere.
- Transaction taxable in Virginia. The tax applies to the first use in Virginia of tangible personal property purchased elsewhere in a transaction which would have been taxed had the transaction occurred in Virginia, regardless of the fact that such property may have been, or may be used in interstate commerce, . . . Any tax due because of first use in Virginia may be subject to credit for like taxes paid elsewhere.
Although the property in question was intended for use outside Virginia, the Virginia Supreme Court held in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980), that:
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If a taxable event occurs in Virginia, subsequent delivery of property outside this State does not immunize the taxable event.
If you should have any questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner