Tax Type
Retail Sales and Use Tax
Description
Transportation equipment; Vehicles and vessels; Tug boat fuel and supplies
Topic
Taxability of Persons and Transactions
Date Issued
07-31-1995
July 31, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letter in which you contest a consumer use tax assessment to your client, *******(the "Taxpayer"), for the period June 1990 through April 1994.
FACTS
The Taxpayer, a tug boat company which tows ships and vessels either to be repaired or to be unloaded at ports, within the Hampton Roads harbor, in the Chesapeake Bay, as well as up and down the coast, contests a recent sales and use tax assessment on supplies consumed aboard the boats. The Taxpayer suggests that the supplies, such as groceries, charts, and other items, are exempt from the tax under Code of Virginia §58.1-609.3(4). The auditor, however, determined that the Taxpayer does not use its vessels in activities which would qualify its purchases of supplies for an exemption from the tax.
DETERMINATION
Code of Virginia §58.1 -609.3(4) provides an exemption from the sales and use tax for:
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- Ships or vessels used ... exclusively or principally in interstate or foreign commerce, or repairs and alterations thereof; or fuel and supplies for use or consumption aboard ships or vessels plying the high seas, either in intercoastal trade between ports in this state and ports in other states of the United States or its territories or possessions, or in foreign commerce between Virginia ports in this state and ports in foreign countries are exempt from the tax when delivered directly to such ships or vessels; or tangible personal property used directly in the building, conversion or repair of the ships or vessels covered by this subdivision.
For fuels and supplies to qualify for exemption under this provision, they must be used in vessels which "ply the high seas" -- those which sail over the open waters of an ocean beyond the limits of the territorial jurisdiction of the United States -- and the vessels must be engaged in intercoastal trade or foreign commerce. While the vessels owned by the Taxpayer may be used in intercoastal trade, l do not find that the vessels "ply the high seas". From a review of the information provided regarding the use of the vessels during the month of September which I understand is representative of the overall usage of the vessels, it appears that while the vessels may go to other states' ports, the Taxpayer's vessels primarily navigate the Chesapeake Bay and Hampton Roads harbor, which are not part of the "high seas." P.D. 93-55 (3/5/93), copy enclosed, clarifies that the exemption is available only to those ships and vessels which regularly sail over that portion of the ocean beyond the territorial jurisdiction of the United States.
The department is bound by the doctrine of strict construction in interpreting the sales and use tax exemptions and since the Taxpayer did not meet both criteria necessary for exemption as explained above, we find that the auditor was correct in assessing the tax on supplies used on the Taxpayer's vessels.
As the department's policy with respect to this issue is clear and has been applied with consistency, it is unlikely that a meeting would impact our determination. However, if you have any questions about the matter or additional facts, please contact******* in my Office of Tax Policy at********A revised Notice of Assessment with accrued interest will be mailed to the Taxpayer shortly.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8483H
Rulings of the Tax Commissioner