Tax Type
Retail Sales and Use Tax
Description
Produce electricity for sale in the wholesale market.
Topic
Basis of Tax
Exemptions
Property Subject to Tax
Date Issued
04-09-2002
April 9, 2002
Re: Ruling Request: Sales and Use Tax
Dear *****:
This is in response to your letter of January 7, 2002, in which you request a ruling on the application of the retail sales and use tax to a generator step-up transformer ("GSU transformer") to be used by your client (the "Taxpayer").
FACTS
The Taxpayer proposes to build an electricity generating facility in Virginia to produce electricity for sale in the wholesale market. All electricity produced at the proposed plant will be for sale only to electric utilities. The Taxpayer does not intend to register as a public service corporation in Virginia.
The proposed facility will be a single-site facility containing several generators to produce the electricity. The facility will be connected to the electric utility grid in order to distribute the electricity to customers within and without Virginia. A GSU transformer will be attached to each generator located within the plant site and will serve to increase (or step up) the voltage frequency to the required voltage level needed for sale to customers.
You request a ruling that the GSU transformer may be purchased by the Taxpayer or its facility construction contractor exempt of the tax pursuant to the industrial manufacturing exemption set out by Code of Virginia § 58.1-609.3(2)(iii).
RULING
The department has long treated the production of electricity for sale or resale as a process entitled to the industrial manufacturing and processing exemption. See Public Document (P.D.) 86-218 (11/3/86) and 89-274 (10/25/89).
In addition, Code of Virginia § 58.1-609.3(2)(iii) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing . . . products for sale or resale ...."
It is my understanding that the product (electricity) is not deemed completed for sale until it has been stepped up to a higher voltage at the plant site. Based on this
understanding, I find basis for concluding that the GSU transformers in this case would qualify for the industrial manufacturing exemption.
When purchasing the GSU transformers, the Taxpayer should present a completed and signed ST-11 exemption certificate to its vendor. In the event that the facility construction contractor makes these purchases, such contractor is not entitled to use the ST-11, but it may request an ST-11A exemption certificate from the department in accordance with the provisions set out in Title 23 of the Virginia Administrative Code
10-210-280(E).
A contractor's written request for the Form ST-11A may be sent by facsimile to the attention of ***** at *****, or mailed to her attention at the department's Office of Customer Relations, Customer Services, Post Office Box 1115, Richmond, Virginia 23218-1115.
This ruling is based upon the facts presented. Any change in the facts or in the use of the GSU transformers at issue could alter the tax consequences. If you have any questions about this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/37943R
Rulings of the Tax Commissioner