Tax Type
Retail Sales and Use Tax
Description
Public utility; Monitoring equipment replacement parts
Topic
Taxability of Persons and Transactions
Date Issued
07-29-1988
July 29, 1988
Re: Ruling Request/ Sales and Use Tax
Dear **************************
This will reply to your letter of May 11, 1988 seeking a ruling that ******** purchases of replacement parts for analog summing and telemetering equipment qualify for exemption from the sales and use tax. You contend that this equipment qualifies for exemption from the tax as tangible personal property used directly in the rendition of the taxpayer's public utility service, under § 58.1-608(10) of the Virginia Code.
FACTS
It is our understanding that analog summing and telemetering equipment is used to monitor system conditions such as circuit overloading, equipment and maintenance problems, low voltage conditions, circuit interruptions, etc. This equipment is classified under Account 570, Maintenance of Station Equipment, the cost of which is includible in Account 353 which Virginia Regulation (VR) 630-10-87 classifies as Exempt.
You contend that the exceptions listed in footnote 4 of the regulation do not apply to this equipment since it is not listed under the category of structures and general purpose equipment or under the category of administrative comfort, record keeping, and employee comfort. Lastly, you state that the replacement parts for the analog summing and telemetering equipment are indispensable for operating the taxpayer's equipment for generating, transmitting and distributing electricity.
RULING
Virginia Code § 58.1-608(10) provides an exemption from the 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..."
Virginia Regulation 630-10-87 then provides that:
-
- Items ... 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 utility service. Emphasis added.
Based on the information presented, the taxpayer's analog summing and telemetering equipment may be indispensable to the smooth functioning of the taxpayer's public utility service. However, such equipment, including repair or replacement parts for use on such equipment, is not used or consumed immediately in the performance of such public utility service. While the information produced by this equipment is used by the taxpayer to make operations decisions, such equipment does not of itself initiate such decisions. Rather, information provided by this equipment enables the taxpayer's personnel to make decisions about operational system adjustments and the regulation of the flow of power throughout their system.
Furthermore, the fact that this equipment is used by the taxpayer in activities other than mere record keeping, does not prevent it from being considered as being used in an administrative activity. Directly analogous to this equipment is computer hardware and software used by industrial manufacturers to produce production reports, make production information available to plant personnel, or monitor the efficiency of production machinery, etc., which are deemed to be taxable administrative items. See VR 630-10-63.C.2, copy enclosed.
Based on the foregoing, I cannot agree at this time that the taxpayer's analog summing and telemetering equipment replacement parts qualify for the public utility exemption. However, in a September 27, 1985 ruling, copy enclosed, the department allowed a public utility a partial exemption based on the percentage of time certain equipment was used in identifying repair and maintenance needs of exempt equipment. In addition, in an unrelated December 23, 1987 ruling, the department determined that certain load management switches qualified for the public utility exemption.
If the taxpayer can show that its analog summing and telemetering equipment performs a function or functions identical to those addressed in either of the enclosed rulings, the audit will be adjusted accordingly and a refund will be issued. The taxpayer should contact the department's *********District Office to provide information in support of any such audit adjustment.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner