Virginia – Exemption for Pollution Control Equipment

1/18/2013

SALT Report 2056 – The Virginia Department of Taxation revised a use tax assessment imposed on purchases of various items for use in an oil and natural gas well operation.  The original assessment is the result of an audit in which the Department determined that a Taxpayer’s purchases of pit liners and storage tanks did not qualify for the pollution control exemption. The Taxpayer appealed the assessment.

On behalf of the Taxpayer, the Department of Mines, Minerals and Energy wrote a letter to the Department of Taxation certifying that the pit liners and storage tanks at issue were primarily used to minimize or control water or atmospheric pollution and contamination. The letter further noted that under the DMME’s interpretation of the exemption the Taxpayer’s purchases of certified pit liners and storage tanks should qualify, so long as they are certified by the DMME.

Upon redetermination, the Commissioner noted that the pollution control exemption expired on July 1, 2006 and the statute was not amended to extend the exemption. However, the Commissioner stated that under Virginia Code § 58.1-3660 B that the DMME is the certifying agency for all pollution control equipment and facilities. As a result, the Department reconsidered its position on the exemption and decided that they would continue to recognize the exemption administered by the DMME retroactive to July 1, 2006.

Because of this, the Commissioner ruled that the Taxpayer was entitled to the exemption for its purchases of DMME certified pollution control equipment that was used to produce coal, oil, and gas.  Further, the Taxpayer’s audit results were revised and the purchases in question were removed from the assessment as well as any penalties associated with those purchases.

For Further Information:

Virginia Department of Taxation – Ruling of Commissioner PD 2-13