88-25 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Property sold or leased to airlines; Airport terminal furniture

Topic

Taxability of Persons and Transactions

Date Issued

01-14-1988

January 14, 1988

Re: §58.1-1821 Application/Sales and Use Tax

Dear**************

This will reply to your letter of July 20, 1987, in which you submit an application for correction of sales and use tax assessed to ************** as the result of a recent audit.

FACTS

*********** ("Taxpayer") is an airline operating as a common carrier from Virginia airports. A recent audit of the taxpayer produced an assessment for various articles of tangible personal property purchased by it, including furniture used in a terminal facility operated by the taxpayer and imprint plates that the taxpayer furnished to travel agents for use in the processing of airline ticket sales.

The taxpayer contests the assessment of tax on terminal furniture and imprint plates, citing the opinion of the Virginia Supreme Court in Commonwealth v. United Airlines.

DETERMINATION

§58.1-608.26 of the Code of Virginia provides an exemption from the sales and use tax for:

- Tangible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports for use or consumption by such airline directly in the rendition of its common carrier service.

The above statutory exemption was interpreted by the Virginia Supreme Court in Commonwealth v. United Airlines, 219 Va. 374, 248 S.E.2d 124 (1978). In its opinion, the court affirmed its earlier opinion in Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E.2d 619 (1973) that "the "direct use" exemption excluded items merely convenient and facilitative to the operation of the business as a whole but not an immediate part of actual performance of the public service." The court set forth the following test in Community Motor Bus to determine whether an item was used directly in the rendition of common carrier service:

- (1) whether the item is indispensable to...actual rendition of...service, and (2) whether the item is primarily used or consumed immediately in...rendition of...service.

In United Airlines, the court did find several types of property "used to process...passengers and send them on their flight" to be used directly in the rendition of airline common carrier service. Such property included ticket and baggage counter components, an intercom system, flight information boards, and attendant stands.

The terminal furniture in question is provided by the taxpayer merely for the convenience of its passengers while they await departure. As such, it is not necessary for either the processing or embarkation of passengers. Rather, the furniture is facilitative to these functions and is used indirectly in the rendition of airline common carrier service. This determination is consistent with Virginia Regulations 630-10-24.3 (common carriers of property by motor vehicle) and 630-10-24.4 (common carriers of property or passengers by railway), which both exempt property used directly in the receiving, sorting, loading, and shipping of freight.

I also do not find basis for the removal of imprint plates from the department's audit. The court in United Airlines did find an integrated information system that provided among other data, reservation and ticketing information, to be nontaxable as the information provided by the system was critical and essential to the effective rendition of the airline's service. The present imprint plates differ from such a system, however, in that they are neither critical nor essential to the rendition of the taxpayer's public service. Rather, the plates, which are furnished to travel agents by the taxpayer, are used merely to imprint the name of travel agents on the airline tickets that they sell. As such, the plates serve only a convenient or facilitative purpose in the provision of airline common carrier service.

Based upon the foregoing, I do not find basis for the revision of the assessment issued to the taxpayer.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner