95-128 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Barges that deliver fuel to foreign vessels; Property purchased outside of state

Topic

Taxability of Persons and Transactions

Date Issued

05-19-1995

May 19, 1995

Re: §58.1-1821 Application: Retail Sales and Use Tax

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

This is in response to your letter of November 11, 1994 in which you seek correction of withholding tax, corporation income tax and sales and use tax assessments issued to****************(the Taxpayer). I note that by letter dated March 10, 1995 a member of my Technical Support Section responded to your questions regarding the corporation income tax and withholding tax assessments. Therefore, in this letter I will address the sales and use tax assessment.

FACTS

The Taxpayer sells and delivers marine fuels to foreign vessels. In performing this operation, the Taxpayer utilizes tug boats and barges to deliver the fuel to ships which are anchored in Virginia waters as well as in ports of other states. An audit for the period January 1987 through October 1992 resulted in an assessment primarily for the untaxed purchase or charter of barges and for supplies purchased for use aboard the barges and tugs.

The Taxpayer protests the tax on these transactions and maintains that the barges, tugs and supplies are exempt from the tax pursuant to Code of Virginia §58.1609.3(4). The Taxpayer also indicates that at least some of the barges were not principally employed in Virginia waters.

RULING

Code of Virginia §58.1-609.3(4) provides an exemption from the tax for:

- Ships or vessels, or repairs and alterations thereof, used or to be used exclusively or principally in interstate or foreign commerce; fuel and supplies for use or consumption aboard ships or vessels plying the high seas, either in intercoastal trade between ports in the Commonwealth and ports in other states of the United States or its territories and possessions, or in foreign commerce between ports in the Commonwealth and ports in foreign countries, when delivered directly to such ships or vessels....

This statute specifically provides that the exemption applies to vessels and ships which ply the high seas either in:

foreign commerce between ports in the Commonwealth and ports in foreign countries, or

intercoastal trade between ports in the Commonwealth and ports in other states of the United States (or its territories and possessions).

In the instant case, I find no indication that the Taxpayer's barges and tugs satisfy either of these criteria. Based on the Taxpayer's work location records, sales and delivery of fuel took place primarily within the same port where the fuel was purchased. Accordingly, the principal use of the protested barges was not in interstate commerce.

Further, Virginia Regulation (VR) 630-10-98 indicates that the exemption is restricted to the ships and vessels described in the statute and not to other ships, vessels, boats or other watercraft. It is apparent that the Taxpayer's marine customers may enjoy the exemption for ships used in interstate or foreign commerce; however, there is no authority to extend the exemption to barges and tugs which service those ships.

The second issue concerns the Taxpayer's claim that some of the assessed barges were not principally used in Virginia waters. In this regard, I understand that of the seven barges listed in the audit, three show a home port in Virginia and two show a home port in other states. The home ports of the remaining barges are unknown. Further, the available records examined by the auditor indicate that some of the barges were used primarily in Virginia and all of the barges were used in Virginia at some time during the audit period.

Code of Virginia § 58.1-604 imposes the tax on tangible personal property used or consumed in Virginia. In addressing property purchased outside Virginia, VR 63010-109(D) indicates that:

- Tangible personal property purchased for use outside the state but later brought into the state is taxed based on the proportion of the cost price or fair market value as the duration of time of use within this state bears to the total useful life of the property.

In order to determine a prorated tax on those barges which are used outside of Virginia, it is necessary for the Taxpayer to show that the barges were purchased and first placed into use outside of Virginia and also to provide documentation such as voyage logs which show specifically where each barge was used during the audit period.

Accordingly, the Taxpayer is requested to provide the necessary information to the*********within 30 days. Upon review of that information, the assessment will be adjusted accordingly. However, lacking any additional documentation, the tax is deemed correct as assessed.

Please contact*********in my Office of Tax Policy at you have any additional questions regarding this letter.

- - - - Sincerely,
        
        Danny M. Payne
        Tax Commissioner

OTP/8752I

Rulings of the Tax Commissioner