Document Number
85-191
Tax Type
Retail Sales and Use Tax
Description
Purchases by common carrier
Topic
Exemptions
Date Issued
10-15-1985


  • October 15, 1985


    Re: Virginia Code Section 58.1-1821 Application Sales and Use Tax


    Dear ****

    This is in reply to your letter of April 16, 1985, in which you applied for correction of the sales and use tax assessment issued to ***** as the result of a recent audit.

    FACTS

    ***** (Corporation) holds a certificate of convenience and necessity issued by the Interstate Commerce. Commission (ICC). In addition to operating as a common carrier under its certificate issued by the ICC, Corporation operates as a contract carrier of logs, and."trip. leases" with other trucking companies, and also operates a retail automobile and truck parts business.

    Virginia Code Section 58.1-608.10 provides an exemption from the Virginia Retail Sales and Use Tax for:
      • tangible personal property sold or leased to a public service corporation engaged in business as a common carrier of property or passengers by motor vehicle or railway, for use or consumption by such common carrier directly in the rendition of its public service. (Emphasis added)

    During the recent sales and use tax audit, the department determined that same of the purchases Corporation made, exempt from the tax, were for items not used "directly in the rendition of its public service". The department held that only the tangible personal property purchased for use by Corporation in its common carrier operation was entitled to be made exempt from the tax. The department determined the amount of non-exempt purchases by prorating the purchases based on the percentage of revenue generated by Corporation's contract hauling operation and "trip leasing' operation to its total trucking operation.

    You protest this assessment contending that all of Corporation's trucking operations are exempt under the common carrier exemption granted by Virginia Code Section 58.1-6O8.10.

    DETERMINATION

    The only tangible personal property exempt from taxation is the tangible personal property that is used directly to enable a corporation to carry out its common carrier function.

    This is explained in the Virginia Retail Sales and Use Tax Regulations under §63O-10-24.3, which states in part:

    A common carrier must be authorized to operate under a certificate of convenience and necessity issued by the State Corporation Commission or the Interstate Commerce Commission in order to qualify for this exemption. This regulations applies only to common carriers of property by motor vehicle, including restricted common carriers and has no application to contract or other carriers .
      • The applicability of the sales and use tax exemption for tangible personal property purchased by a common carrier operation depends on the use rather than the type of property The same item may be taxable in one instance and exempt in another, depending entirely upon its usage.
      • For sales and use tax purposes, a carrier who contracts to haul for a common carrier and in performance of that contract furnishes the motor vehicle, driver, and any other necessary tangible personal property is not a lessor of motor vehicles and is not entitled to a resale exemption on the purchase of tangible personal property, such as repair parts, used in the performance of the contract. This applies even though such carrier may operate under the ICC rights of the common carrier

    Therefore, only tangible personal property purchased for Corporation's common carrier operation (as defined by the bounds of its ICC authority) is exempt from the tax. Any tangible personal property purchased and used in any trucking operation that Corporation engages in outside of the bounds of its ICC certificate is subject to the tax.

    The contract hauling that Corporation does is outside of its ICC authority. You contend that log hauling is exempt because logs are considered an exempt commodity. Even though the ICC has determined that logs are an exempt commodity and the hauling of logs is not subject to the authority of the ICC; there is no exemption from the Virginia Retail Sales and Use Tax for log hauling Also, Corporation's "trip leasing" arrangements with other companies are outside of its ICC authority. Therefore, any purchase of tangible personal property which enables Corporation to perform these two operations is taxable

    Inasmuch as Corporation is engaged in common carrier, log hauling and "trip leasing" activities using the same vehicles for all three activities, we must conclude that the exemption for items which normally would be used directly by Corporation in its common carrier operations must be prorated based upon the percentage of revenue generated by each separate operation.

    Since this position of the department has been clearly stated in the regulations, we have made this determination without first holding a meeting. If you feel that you have additional information and desire to have a meeting, please contact my office to arrange a time convenient to all parties.

    Sincerely,

    W. H. Forst
    Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46