June 8, 2018
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you request a ruling on the application of the Virginia retail sales and use tax to solar electric generating equipment for use by ***** (the “Taxpayer”) to produce electricity for sale or resale. I apologize for the delay in this response.
FACTS
The Taxpayer will operate a solar energy generation facility in Virginia. The Taxpayer seeks clarification of the manufacturing exemption as it applies to mounting and racking equipment used to support solar arrays. The Taxpayer disagrees with the position taken by the Department in Public Document (P.D.) 14-37 (3/19/14). In this ruling, the Tax Commissioner concluded that mounting and racking equipment used to support solar panels and solar arrays did not qualify for the manufacturing exemption.
The solar arrays consist of individual solar panels. Racking is used to mount and support the solar panels that form a solar array. A ground anchoring system supports the racking for the solar arrays. Pedestals are the primary component used to provide upright support and secure the solar arrays to the ground. The Taxpayer's solar facility will use a fixed axis tracking system in which the solar arrays rotate with the path of the sun to increase the efficiency of the system. The pedestals also support torque tubes, which are used with the fixed axis tracking system. The Taxpayer states that the mounting and racking also provides electrical grounding for the system.
The Taxpayer also requests information regarding the application of the pollution control exemption to solar power generation facilities and the correct procedures for contractors to use when making exempt purchases for solar energy projects.
RULING
Manufacturing and Processing Exemption
P.D. 14-37 addresses a solar energy production facility that requested a ruling on the application of the manufacturing exemption to various equipment used to produce electricity for sale or resale. P.D. 14-37 stated that the production of electricity for sale or resale qualifies as an exempt manufacturing activity. The manufacturing exemption is not available, however, to public service corporations. The ruling further stated that mounting and racking equipment used to support solar arrays and panels did not qualify for the manufacturing exemption because the supports and racking were not used directly in the process of manufacturing electricity from solar energy. This conclusion was reached based on a limited amount of information regarding the mounting and racking equipment that was made available to the Department.
The Taxpayer maintains that the mounting and racking equipment is used directly in solar energy production and qualifies for the manufacturing exemption based on the Department's manufacturing regulation and on previous policy set out in various public documents. This response is based on the assumption that the Taxpayer is not a public service corporation, which makes it eligible for the manufacturing exemption.
Virginia Code § 58.1-609.3 2 (iii) provides an exemption from the retail sales and use tax for “[m]achinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or converting products for sale or resale ....” [Emphasis added.] Title 23 of the Virginia Administrative Code (VAC) 10-210-920 interprets the industrial manufacturing and processing exemption. Subsection C 2 of this regulation states that “[s]teel or similar supports which are a component part of exempt production machinery and which do not become permanently affixed to realty are not subject to the tax. However, concrete floors or foundations on which such supports rest or to which machinery is bolted, and structures housing machinery are not used directly in manufacturing and processing and are subject to tax.”
The Department has issued several public documents that address supports for production machinery. The Taxpayer cites some of these documents in its ruling request. P.D. 11-8 (1/20/11) discusses steel supports for conveyor systems. The steel supports served as legs to sustain the conveyor systems above ground level and rested upon foundations that were anchored to the ground. The conveyor systems could not function without the steel supports. The Tax Commissioner determined that the steel legs were a component part of the exempt conveyor systems. As such, the steel legs were used directly in an exempt processing activity and qualified for exemption from the sales and use tax.
P.D. 91-183 (8/26/91) addresses at what point steel supports become a component part of exempt production machinery. P.D. 91-183 states that if freestanding steel legs or other supporting structures are attached to exempt machinery, are used solely to support exempt machinery and the machinery cannot be operated without the supports, the steel or other supporting structures become a component part of the machinery. Based on this criteria and Title 23 VAC 10-210-920 C 2, the manufacturing exemption applied to the steel supports for the exempt production machinery addressed in P.D. 91-183.
The Taxpayer's mounting and racking equipment is used solely to support the solar panels and the solar arrays. Further, the fixed axis system used with the solar arrays to harvest solar energy for the production of electricity cannot function without the racking and mounting supports. The supports enable the solar arrays to rotate with the movement of the sun during the day and are an integral part of the fixed axis system. Based on the cited authorities and a review of the information provided by the Taxpayer regarding the mounting and racking equipment, the mounting and racking equipment qualifies for the manufacturing exemption. Concrete or other types of foundations on which the supports rest, or are attached to, are not used directly in manufacturing and are subject to the tax.
Pollution Control Exemption
The Taxpayer suggests that there is some confusion regarding the scope of the pollution control exemption for solar energy equipment and facilities. Due to the fact that the Department of Mines, Minerals and Energy (“DMME”) administers the certification process for solar energy production facilities, the Taxpayer is concerned that the Department of Taxation will administer the exemption in a manner consistent with other pollution control projects certified by other government agencies. The Taxpayer requests confirmation that various equipment and other items qualify for the pollution control exemption when certified by the DMME. The Taxpayer has provided a copy of a recent DMME certification for a similar solar energy project and seeks confirmation from the Department that the equipment and items listed in the certification qualify for the pollution control exemption regarding the sales and use tax.
Virginia Code § 58.1-609.3 9 provides an exemption from the sales and use tax for “[c]ertified pollution control equipment and facilities as defined in § 58.1-3660, except for any equipment that has not been certified to the Department of Taxation by a state certifying authority pursuant to such section.” Virginia Code § 58.1-3660 B then defines certified pollution control equipment and facilities to include “solar energy equipment, facilities, or devices owned or operated by a business that collect, generate, transfer, or store thermal or electric energy whether or not such property has been certified to the Department of Taxation by a state certifying authority.” The exemption for solar energy equipment and facilities became effective January 1, 2017 as a result of a legislative change to the definition of certified pollution control equipment and facilities. As previously noted, the state certifying authority for solar energy projects is the DMME.
Title 23 VAC 10-210-2090 addresses the sales and use tax exemption for pollution control equipment and facilities. Subsection B states that any property that is certified as used primarily for abating or preventing air or water pollution is not subject to the sales and use tax. Pursuant to the regulation, qualifying property includes real or tangible personal property, equipment, facilities or devices used primarily for the purpose of air or water pollution abatement or prevention. The Department's position is that any items certified by the DMME as pollution control equipment and facilities would qualify for exemption from the tax.
Procedures For Contractors
The Taxpayer requests instructions for use by real property contractors to claim the manufacturing and pollution control exemptions when making purchases for certified solar energy projects. The Department currently requires contractors to issue vendors Form ST-11A to make exempt purchases of qualifying manufacturing and pollution control equipment, machinery and other tangible personal property. Contractors must apply to the Department for the Form ST-11A. The applicant should submit to the Department a written request for the ST-11A exemption certificate on its business letterhead with the information that follows.
Name of manufacturer or non-manufacturer
Address of manufacturer or non-manufacturer
FEIN, if applicable
Certification date of pollution control projects Name of project
Description of project
Project completion date
Contractor or contractors performing the work
A copy of the pollution control certification letter
The request should be mailed to: Department of Taxation, Post Office Box 1115, Richmond, Virginia 23218-1115. Upon approval by the Department, the applicant will be issued copies of Form ST-11A and a confirmation letter stating the project qualifies for the applicable exemption.
This response is based on the facts provided as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulations and public documents cited, along with other reference documents, 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 concerning this response, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1488.S