Tax Type
Retail Sales and Use Tax
Description
Public utilities
Topic
Collection of Delinquent Tax
Exemptions
Property Subject to Tax
Date Issued
04-15-1999
April 15, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****
This will reply to your letter in which you seek correction of a sales and use tax assessment issued to ***** (the Taxpayer) for the period September 1994 through August 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a public service corporation which provides electrical power to public and private customers. As a result of the department's audit, an assessment was made for untaxed purchases of equipment and supplies.
The Taxpayer contests the assessment of tax on equipment and supplies and maintains that such property is used directly in the rendition of electricity to its customers. In addition, the Taxpayer takes exception to the taxing of protective clothing. The Taxpayer claims that the clothing protects workers from the hazards of flames or electric arcs in their work area.
DETERMINATION
Code of Virginia § 58.1-609.3(3) provides an exemption from the sales and use tax for "[t]angible personal property sold or leased to 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....'
Title 23 of the Virginia Administrative Code (VAC) 10-210-3020 which interprets the above statutory provision provides that "items of tangible personal property that are used directly in the rendition of a public utility service are those which are both indispensable to the actual provision of a utility service and used or consumed immediately in the performance of such service. The fact that a particular item may be considered essential to the rendering of a public utility service because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly in the rendition of a public service.
Keeping the above in mind, I will address each of the issues raised by the Taxpayer separately.
Guy Wire, Guy Attachments, and Anchor Rods
The guy wire is a woven strand of wire that is attached to the poles that support the wires carrying the electricity. The guy wire is used as a support to keep the pole upright. The guy attachments are the nuts, bolts, and other items which attach the guy wire to the pole. The anchor rods are six to eight foot metal rods that are screwed into the ground and the guy wires are attached to them.
The guy wire, guy attachments, and anchor rods are not used or consumed immediately in the performance of the Taxpayer's public service; rather, the use of such items to support poles carrying the electricity only indirectly touches on the rendition of the public service. While the items are essential to the operation of the utility service, they are not used directly in the rendition of electricity and, therefore, are taxable. The department's position in this case is consistent with the department's long-standing policy on the taxation of tangible personal property used to support transmission poles. See enclosed Public Document 91-5 (1/23/91).
Street Lights and Bulbs
It is my understanding that the contested street lights are dusk to dawn lights used by the Taxpayer's residential customers as outdoor security lighting. The bulbs are used to replace street light bulbs that burn out. The Taxpayer maintains that the lights make up a portion of the State Corporation Commission's (SCC) approved rates and, therefore, are exempt from the tax.
Code of Virginia § 56-35 grants the SCC the power of supervising, regulating and controlling all public service companies doing business in Virginia and in all matters relating to the performance of their public duties and their charges. Based on information obtained from SCC, the cost of providing and maintaining outdoor lighting service to residential customers by an electric cooperative can be included in their rate making schedule.
Title 23 VAC 10-210-3020(C) provides an exemption from the sales and use tax for property used directly in the rendition of a public service in activities the cost of which is recoverable by a utility through the rate making process. Based on the foregoing, the exemption will apply to the street lights and replacement bulbs provided to residential customers. Accordingly, the audit will be revised to remove the street lights and replacement bulbs used to offer outdoor lighting to residential customers.
Formex Pads
The formex pads are heavy gauge fiberglass pads on which transformers are set. The pads raise the transformers off the ground to protect the metal surface from the ground and to allow easier access for maintenance. While Title 23 VAC 10-210-3020 provides an exemption for transmission poles and transformers, the regulation specifically states that foundations and settings are taxable. As such, the formex pads on which the transformer is set is taxable.
Tools and Supplies
Title 23 VAC 10-210-3020(G) provides an exemption for equipment, tools, repair parts, and supplies used to keep a utility's transmission or distribution system in operation or repair. The contested tool bags, tool boxes, tool trays, flag holders, shovels, flashlights and batteries are not used directly to keep transmission or distribution systems in operation and are not essential to or an immediate part of the repair function of exempt equipment. Accordingly, these items are taxable.
Based on the information provided, the reversible gas drill is used to drill holes in the utility poles and equipment in order to hang and secure distribution equipment to the poles prior to the installation of the wires that carry the electricity. As such, I find that the drill is not used or consumed immediately in the performance of the utility's service or used in the maintenance and repair of exempt equipment. Accordingly, the gas drill is subject to the tax.
Wildlife Protectors
The wildlife protectors are devices that keep animals out of the transformers and other electrical equipment to prevent animals from shorting out distribution lines. Although wildlife protectors may be necessary, they do no touch directly on the rendition of the utility's service. Further, footnote 4 of Title 23 VAC 10-210-3020(H) specifically provides that insect control materials are taxable. As such, I find that the auditor correctly assessed the tax to wildlife protectors.
Hand "V' Brush, File Card Brush, Horiz Fan, Oil Thermometer
Based on additional information provided, the hand "V' brush is a wire brush used to clean energizer lines prior to installing the connectors to insure a good clean connection. The file card brush serves the same purpose but is used on nonenergizing lines. These items qualify for exemption as they are used directly to keep distribution lines in operation.
The oil thermometer and Horiz fan are attached to the substation transformer and used to control the temperature of the transformer. When the oil thermometer indicates that the transformer is overheating, the Horiz fan automatically starts in order to cool down the transformer. These items qualify for exemption as they are installed into exempt equipment and are used directly in the rendition of a public utility service.
Volt and Fluke Meters
The meters are used for identifying specific repair and maintenance problems in lines. The meters are also used to monitor the current or voltage in a line for analysis.
In Public Document (P.D.) 88-221 (7/29/88), the department ruled that telemetering equipment would be exempt only to the extent shown that it functioned to identify specific repair and maintenance problems of exempt equipment. The telemeter in that case is similar to the volt and fluke meters in the current case. As such, I find that the volt and fluke meters are exempt only to the extent used to identify specific repair and maintenance problems. However, the meters are taxable when used to collect data for analysis. Accordingly, a partial exemption will be allowed based on the percentage of taxable and nontaxable use.
Uniforms
The uniforms are provided to employees that work on the lines. The fire retardant clothing protects the employee from further extensive injury if exposed to flames or electric arcs.
Items listed in the category of taxable general purpose equipment in footnote 4 of Title 23 VAC 10-210-3020 (H) include safety and first-aid equipment (except protective clothing worn by production, transmission, or distribution staff employed by a public utility). Accordingly, the fire retardant clothing worn by employees will be removed from the audit assessment.
Summary
The assessment will be adjusted according to the determination set forth herein. An auditor from the ***** District Office will contact the Taxpayer in order to make the necessary revisions regarding the assessment of the fluke and volt meters. If you have any questions regarding this determination, please contact ***** in the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13950T
Rulings of the Tax Commissioner