Tax Type
Retail Sales and Use Tax
Description
Public Service Corporations; Property Used by Water and Sewer Utility
Topic
Taxability of Persons and Transactions
Date Issued
04-12-1990
April 12, 1990
Re: Request for Ruling/Sales and Use Tax
Dear**************
This will reply to your letter of December 7, 1989 in which you request a ruling as to the sales and use tax application to items used in rendering water and sewer utility service.
FACTS
********** (the Taxpayer) is a water and sewer utility company. As a water utility, the Taxpayer pumps water from wells, add chemicals, stores the water in tanks, and pumps water to its customers. As a sewer utility, the Taxpayer collects sewage in pipes, processes the sewage at a treatment plant, and releases the treated water into streams and irrigation fields. The Taxpayer is requesting the taxable status of purchases of various equipment used in their operation.
RULING
Virginia Code §58.1-608(3)(c) provides an exemption from the sales and use tax for "tangible personal property sold or leased to a public service corporation subject to a state franchise or licensed tax upon gross receipts..., for use or consumption by such corporation,... directly in the rendition of its public service."
The above statute clearly states that tangible personal property must be used directly in the rendition of a utility's public service in order to gain the exemption. In interpreting the statute, §630-10-87(D) of the Virginia Retail Sales and Use Tax Regulations (copy enclosed) provides:
-
- Direct usage refers to those activities that are an integral part of the rendition of a public utility service, including all steps of a utility's production, generation of initiation process as well as a utility's transmission or distribution process, but not including incidental public utility functions such as administration and management.
Items of tangible personal property 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.
- Direct usage refers to those activities that are an integral part of the rendition of a public utility service, including all steps of a utility's production, generation of initiation process as well as a utility's transmission or distribution process, but not including incidental public utility functions such as administration and management.
ITEMS TAX STATUS
Chemical added to water for sale. Exempt
Parts and Equipment used to transport water
to customer. Exempt
Materials used in construction of wells. Exempt
Meters for reading customers usage. Exempt
Pipes used to distribute water to customers. Exempt
Equipment used to maintain property. Exempt *
office equipment and repairs. Taxable
Water tanks used to store water for resale. Exempt
Labor to install water tanks. Exempt
Chemicals used to process sewage. Exempt
Pipes used to transport sewage to the
treatment plant. Exempt
Equipment and parts used in treatment plant. Exempt**
* When used in the maintenance of property used directly in the rendition of utility service.
** When used directly in water treatment.
The Taxpayer has presented no information regarding its status as a qualified public service corporation. The above determinations are based on the assumption that the items are used directly in the rendition of a public service by a qualified "public service corporation" as defined in Virginia Regulation 630-10-87(B) enclosed.
If you should have any further questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner