Tax Type
Retail Sales and Use Tax
Description
Fuel and Supplies Used for Dredging Equipment; Ships and vessels
Topic
Taxability of Persons and Transactions
Date Issued
08-10-1992
August 10, 1992
Drear ****
This will reply to the protest submitted by * * * seeking correction of a retail sales and use tax assessment for********** (the "Taxpayer').
FACTS
The Taxpayer, a business engaged in dredging waterways on the East Coast, was audited for the period January 1, 1984 through October 31, 1989. The Taxpayer contests the assessment of tax on its purchases of fuel and supplies used on its dredges on the basis that the purchases qualify for exemption from the tax under Va. Code §§ 58.1-608(A)(1)(g) or 58.1-608(A)(3)(d).
DETERMINATION
Va. Code § 58.1-608(A)(3)(d) provides an exemption from the tax for ``[s]hips or vessels used . . . in interstate or foreign commerce.' Traditionally, the department has interpreted this statute to provide an exemption for dredges and attendant vessels when they are engaged in the dredging of interstate waterways.
The statute also exempts "fuel and supplies for use or consumption aboard ships or vessels plying the high seas . . . in intercoastal trade.' Although it may be arguable under federal caselaw that the dredges in question engage in intercoastal trade, the Taxpayer still would have to demonstrate that the dredges "ply the high seas.' The common law definition of "high seas' is "that portion of ocean which is beyond the territorial jurisdiction of any country' (Black's Law Dictionary). Therefore, absent such a demonstration, the fuel and supplies purchased by the Taxpayer and held taxable in the assessment would not qualify for exemption under the above Code section.
Va. Code § 58.1-608(A)(1)(g) provides an exemption from the tax for fuels used " in a boat or boats or in a ship or ships.' The exemption applies to fuels whether or not the boats or ships are engaged in intercoastal trade or foreign commerce. As such, fuels for use in ships, boats, and vessels (including dredges) may be purchased exempt of the tax. However, this exemption does not apply to fuel used in operating dredging equipment. Fuel for dredging equipment is used aboard the ship but is not used in the ship for propulsion or other purposes, and thus does not qualify for the exemption.
The Taxpayer maintains that the fuel is used in dredge motors which propel the dredges. While it is possible for a dredge to be self-propelled, it is my understanding that the dredges in this case are pulled by tugboats. Thus, while fuel for use in the tugboats is exempt, fuel used for dredging equipment is taxable.
Accordingly, since the Taxpayer has failed to provide any evidence to support its claim, I must conclude that the department's assessment is proper based upon the policy delineated above and the factual information regarding the mechanical workings of the dredges and the use of the fuel in question. The Taxpayer will shortly receive a bill with interest accrued to date which would be paid within 30 days to avoid the accrual of additional interest.
As the application of the tax in this case is completely dependent upon factual issues, rather than issues of law or policy, I do not see any need for a hearing. If you wish to provide additional facts, these may be submitted to our ****************District Office.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner