Tax Type
Retail Sales and Use Tax
Description
Pollution control and cleanup equipment; Water filters
Topic
Taxability of Persons and Transactions
Date Issued
06-30-1997
June 30, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This will reply to your letter of April 9, 1997, in which you seek correction of a sales and use tax assessment issued to ********(the Taxpayer) for the period January 1994 through December 1996.
FACTS
The Taxpayer is a general contractor. The Taxpayer entered into a real property contract with a government agency, the *******(SWD), to provide materials and install a water filtration system at its municipal water treatment plant. Installation includes the filtration unit, filters, and building a facility to house the filtration unit. The installation also requires the excavation of the ground to lay pipe to connect the filtration system to the water supply. As a result of the department's audit an assessment was made for untaxed purchases used in the performance of its real property contract.
The Taxpayer protests the assessment of tax to filters used in the water filtration system. While you have raised specific questions, I have determined it appropriate to respond to the general issues raised by your questions.
DETERMINATION
Contractors
Generally, contractors are deemed to be the taxable users or consumers of any property used in connection with a real estate construction contract. The same is true for property furnished to a contractor upon which the tax has not previously been paid. See Code of Virginia § 58.1-610 and Title 23 of the Virginia Administrative Code (VAC) 10-210-410. Contractors must pay the tax on items at the time of purchase or remit the use tax on any tangible personal property purchased exclusive of the tax.
However, exceptions to the general rule are set forth in Code of Virginia § 58.1-610(B) for property furnished to a contractor that would otherwise enjoy certain "industrial" exemptions or the governmental exemption in Code of Virginia § 58.1-609.1(4). Under this subsection, and as clarified in Title 23 of the Virginia Administrative Code (VAC) 10-210-410, "property which is exempt from the tax when purchased by a manufacturer, processor, miner, public service corporation,...may also be furnished to a contractor without such contractor becoming subject to the use tax.... The same is true when property is furnished to a contractor by a governmental agency.
Since the Taxpayer purchased the filters for use in real property construction and the filters were not furnished by the governmental agency, the materials do not qualify for the exemption under the above statue and regulation.
Pollution Control exemption
Code of Virginia § 58.1-609.3(9)(i) provides an exemption from the retail sales and use tax for "[c]ertified pollution control equipment and facilities as defined in § 58.1-3660." Code of Virginia § 58.1-3660 requires that for equipment to be certified pollution control equipment it must be primarily used in abating or preventing water or atmospheric pollution or contamination. It is my understanding that the filters at issue are not certified by the Department of Environmental Quality as pollution control equipment since they are not primarily used in such activity. Therefore, the filters do not qualify for the exemption.
Public Utility exemption
Code of Virginia § 58.1-609.3 provides an exemption from the sales tax for "tangible personal property sold or leased by a public service corporation subject to a state franchise or license tax upon gross receipts... for use or consumption... directly in the rendition of its public service...." Code of Virginia § 58.1-610 (E) provides an exemption for materials purchased by a contractor that would otherwise enjoy the industrial exclusion set out in Code of Virginia § 58.1-609.3. See Public Document 89--350 (12/20/89), copy enclosed.
In this case, it is not apparent whether SWD qualifies for the public utility exemption under the above code section. If the Taxpayer can provide documentation that SWD qualifies for the public utility exemption, the purchase of the filters will be removed from the assessment.
Summary
Based on the foregoing, I find there is no basis to revise the audit. I understand that the assessment has been paid in full. Accordingly, no refund will be issued at this time. Nevertheless, if the Taxpayer can provide information with respect to the public utility issue, the department will review this information and if appropriate revise the assessment. The information should be made available to the department within 90 days of the date of this letter. The information should be mailed to the department's Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. If the documentation is not available within the specified period, the assessment will be considered correct as issued.
If you have any questions regarding this letter, please contact*******of my Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12433T
Rulings of the Tax Commissioner