Tax Type
Retail Sales and Use Tax
Description
Tangible personal property deemed used or consumed in connection with real property construction
Topic
Exemptions
Records/Returns/Payments
Tangible Personal Property
Date Issued
07-15-2013
July 15, 2013
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period July 2009 through May 2012. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is an out-of-state refrigeration contractor. An audit resulted in the assessment of use tax on purchases of tangible personal property that the auditor deemed used or consumed in connection with real property construction subcontracts conducted in Virginia. The Taxpayer contests the assessment and maintains that the purchases remain tangible personal property upon installation and thus qualify for the exemption granted by Va. Code § 58.1-609.3 13.
DETERMINATION
Virginia Code § 58.1-609.3 13 provides an exemption from the retail sales and use tax for:
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- Beginning July 1, 1997, (i) the sale, lease, use, storage, consumption, or distribution of an orbital or suborbital space facility, space propulsion system, space vehicle, satellite, or space station of any kind possessing space flight capability, including the components thereof, irrespective of whether such facility, system, vehicle, satellite, or station is returned to this Commonwealth for subsequent use, storage or consumption in any manner when used to conduct spaceport activities; (ii) the sale, lease, use, storage, consumption or distribution of tangible personal property placed on or used aboard any orbital or suborbital space facility, space propulsion system, space vehicle, satellite or space station of any kind, irrespective of whether such tangible personal property is returned to this Commonwealth for subsequent use, storage or consumption in any manner when used to conduct spaceport activities; (iii) fuels of such quality not adapted for use in ordinary vehicles, being produced for, sold and exclusively used for space flight when used to conduct spaceport activities; (iv) the sale, lease, use, storage, consumption or distribution of machinery and equipment purchased, sold, leased, rented or used exclusively for spaceport activities and the sale of goods and services provided to operate and maintain launch facilities, launch equipment, payload processing facilities and payload processing equipment used to conduct spaceport activities.
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- For purposes of this subdivision, "spaceport activities" means activities directed or sponsored at a facility owned, leased, or operated by or on behalf of the Virginia Commercial Space Flight Authority.
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- The exemptions provided by this subdivision shall not be denied by reason of a failure, postponement or cancellation of a launch of any orbital or suborbital space facility, space propulsion system, space vehicle, satellite or space station of any kind or the destruction of any launch vehicle or any components thereof.
The spaceport activities exemption applies to the articles of tangible personal property that satisfy the criteria of the above cited exemption. In this case, however, the auditor deemed the Taxpayer to be the user and consumer of all of the equipment, supplies and other materials that were furnished and affixed to the launch pad facility by the Taxpayer as permanent installations made to real estate. The auditor relied upon Va. Code § 58.1-610 A, which generally treats contractors with respect to real estate as the users or consumers of all tangible personal property used in the performance of a contract and thus requires that they pay the sales or use tax on all such materials.
Notwithstanding, in determining the proper tax treatment of the equipment, materials and supplies at issue that were used to provide environmental control systems and piping components for a space propulsion system around the launch pad, it must be determined whether the equipment remains tangible personal property or becomes a part of the real estate. The Virginia Supreme Court in Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970), ruled that:
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- Three general tests are applied in order to determine whether an item of personal property placed upon realty becomes itself realty. They are: (1) annexation of the property to the realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties. The intention of the party making the annexation is the chief test.
In Roanoke Marble and Granite Company, Inc. v. Standard Gas and Oil Supply Company, Inc., 155 Va. 249, 154 S. E. 518 (1930), the Supreme Court of Appeals of Virginia ruled that:
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- Buildings or structures erected on the leased premises are generally not removable as trade fixtures unless the lease expressly or impliedly reserves to the lessee the right to remove them, but by agreement the parties may fix the character and control the disposition of property, which, in the absence of such a contract, would be held to be fixtures.
Based on the above authorities and the information provided, it appears that the intent is not to make permanent installations of the contested items. In this regard, the Virginia Commercial Space Flight Authority (VCSFA) leases land as a tenant of the U.S. government at Wallops Island, Virginia. Under an agreement between VCSFA and NASA, the VCSFA must return the NASA assets (land and facilities) to the condition existing when NASA granted first use or abandon the VCSFA assets upon termination of the granted use. Furthermore, the contested equipment is not usable for any other rocket and the installations of such equipment are expected to last only as long as the particular rocket is used at the launch pad. When the rocket is no longer used, the contested equipment will need to be removed and discarded. Because of these circumstances, the contested items are not intended for permanent usage but remain tangible personal property upon installation. Accordingly, the spaceport exemption applies to the contested items, which will be removed from the audit.
CONCLUSION
Based on this determination, the contested portion of the assessment will be abated. Because the contested portion is paid in full, a refund of such portion will be issued as soon as practical with refund interest in accordance with Va. Code § 58.1-1833.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5296596019.R
Rulings of the Tax Commissioner