Tax Type
Retail Sales and Use Tax
Description
Gas utility
Topic
Taxability of Persons and Transactions
Date Issued
12-20-1989
December 20, 1989
Re: §58.1-1821 Application: Sales and Use Tax
Dear*****************
This is in reply to your letter of October 16, 1989 in which you are seeking correction of sales and use tax assessed for the period of April 1986 through August 1989.
FACTS
*****(the Taxpayer) is a public gas utility which was audited for the period of April 1986 through August 1989. The Taxpayer is contesting the tax assessed on several items charged to Account Number *** (Distribution Mains) of the Uniform System of Accounts for gas utilities. Account Number *** is classified as an exempt account in Virginia Regulation 630-10-87, accompanied by footnote 4 describing exceptions to the exemption. The Taxpayer feels the auditor misinterpreted footnote 4 in conducting the audit, resulting in the assessment of tax on items the Taxpayer feels fall under the exemption.
DETERMINATION
Footnote 4 for gas utilities contained in Virginia Regulation 630-10-87 states the following:
-
- Tangible personal property charged to this account is exempt except for items included in the following categories: (1) structures and general purpose equipment and (2) administration, record keeping, and commercial expenses.
Items of tangible personal property included under the category of structure and general purpose equipment include, but are not limited to, platforms, railing, steps, ladders, scaffolds, grating, steelwork, foundations, settings, pits, piling, enclosures, other structures, fences, landscaping materials, properties used in the disposal of wastes and pollutants (unless certified by the Virginia Air Pollution Control Board or Virginia Water Pollution Control Board), lighting systems, alarm systems, signal systems, heating and cooling systems, ventilation systems, safety equipment (except protective clothing worn by gas utility production, transmission, or distribution plant employees when furnished gratuitously by a utility), and property used in the repair or replacement of damaged property of others.
Items of tangible personal included under the category of administration, record keeping, and commercial expenses include, but are not limited to, property used for plant security grounds maintenance materials, washroom supplies, office supplies and furniture, building services, charts, forms, and property used in demonstrations.
- Tangible personal property charged to this account is exempt except for items included in the following categories: (1) structures and general purpose equipment and (2) administration, record keeping, and commercial expenses.
Pipehorns:
The primary use of pipehorns are to locate pipes underground in order to perform repairs to the pipes. However, pipehorns may also be used to locate underground pipes for nonrepair purposes, such as advising property owners where pipes are located in order to prevent damage to pipes during construction.
To the extent the pipehorns are used to repair distribution mains, they would be exempt. However, nonrepair use of such pipehorns would be taxable. Accordingly, a partial exemption will be allowed based on the percentage of taxable and nontaxable use.
Gas Leak Detectors:
This item is also used in a dual capacity. Primarily it is used by repairmen to detect the source of a leak in order to make the repair. The secondary use of gas leak detectors is to routinely check the mains for gas leaks to determine where repairs are necessary. These items would be exempt due to the fact that the instrument is being used directly in keeping the distribution mains in operating order. Accordingly, gas leak detectors will be removed from the audit.
Kuhlman Instrument & Combustible Gas Indicator:
These items constitute specialized gas detectors and gas leak indicators respectively. As understood by this office, these items serve the same functions as the gas leak detectors, therefore, will be removed from the audit.
Solid Copper Wire:
As understood by this office, the Taxpayer uses both metal mains and plastic mains in distributing gas to customers. In situations where underground plastic mains are used, repairmen cannot locate the mains by normal detection methods (metal detectors). For this reason, the Taxpayer wraps underground plastic mains in copper wire so that they can be traced by metal detectors.
Virginia Regulation 630-10-87 provides an exemption for tangible personal property used directly in the rendition of a public utility service which are both indispensable to the actual provision of a utility service and used or consumed immediately in the performance of such service. However, the copper wire which is wrapped around the mains does not directly affect the distribution of the utility. While the copper wire is necessary for locating underground plastic mains, distribution of the utility service, as well as repairs, can take place with or without the use of the wire. For this reason I find no basis for the removal of the copper wire from the audit.
Pipe Sizing Calculators:
These calculators are used by service and repair personnel to compute the gas flow through a main in order to determine the correct size of pipe to use in extending a gas distribution mains. The fact that the pipe sizing calculators are used by service and repair personnel directly in the rendition of public utility service functions, would exempt them from the sales and use tax. Accordingly, the calculators will be removed from the audit.
Utility Markers:
These are warning signs used to mark the location of mains. The main purpose of these markers are to warn persons not to dig in those areas without first contacting the utility company. While these markers may be indispensable and required by law, utility markers are not used immediately in the transmission or distribution of gas to the public. Accordingly, these markers are fully taxable.
Cargo Tainers:
These are packaging and shipping containers owned by the Taxpayer and used to ship utility meters to various location for use by the Taxpayer. The Cargo Tainers are used to prevent damage to the meters during the shipping process. While these items are necessary and prevent damage to direct use distribution equipment, the actual Cargo Tainers are not used directly in the transmission or distribution to the public. Therefore, these items are fully taxable.
Landscaping Materials:
In repairing underground mains, the Taxpayer is responsible for restoring customers property to its original condition. The Taxpayer is contesting the tax assessed on the grass seed, sod, straw, stone, blacktop material and various other landscaping materials used in the restoration of real property.
It is clearly stated in footnote 4 of the Uniform System of Accounts for gas utilities that "landscaping material... and property used in the repair or replacement of damaged property of others" is subject to the tax. Therefore, I find no basis for removal of landscaping materials from the audit.
The department's audit will be revised as soon as practicable to reflect the determination reached in this letter.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner