Virginia – Equipment, Supplies, and Materials Qualify for Spaceport Activities Exemption

SALT Report 3027 – The Virginia Department of Taxation issued a ruling regarding whether a contractor’s purchases of equipment, supplies and materials that were furnished and affixed to a launch pad facility qualify for the spaceport activities exemption under Va. Code §58.1-609.3(13).

The issue in this case is an assessment of use tax for certain purchases that an auditor deemed “used or consumed in connection with real property construction subcontracts in Virginia.” The Taxpayer filed an appeal of the assessment claiming that the equipment remained tangible personal property after installation and therefore, qualified for the exemption.

The spaceport activities exemption applies to purchases of tangible personal property that satisfy very specific criteria.  In this case, the auditor relied on Va. Code § 58.1-610 A, which provides that contractors are the users or consumers of all tangible personal property used in the performance of a contract and are required to pay either sales or use tax on all such materials.  Because of this, the auditor determined that the Taxpayer was the user and consumer of the equipment, supplies, and materials that were affixed to the launch pad facility and issued the use tax assessment.

Upon review of the case, the Commissioner stated that it must determine whether the items were used to provide environmental control systems and components for the space propulsion system around the launch pad, and whether the equipment remained tangible personal property or became a part of the real estate, as required by the exemption.

In its decision, the Commissioner stated that based on previous rulings, the intent behind the exemption is not to permanently install the items to the launch pad because the Virginia Commercial Space Flight Authority leases the land from the U.S. government. Under the agreement between VCSFA and NASA, the VCSFA, as a tenant, must return the land and facilities to NASA in the condition that existed when the VCSFA took possession.  Failure to do so would result in VCSFA forfeiting any assets left behind once the lease is terminated.

Furthermore, the Commissioner noted that the equipment in question cannot be used on any other rocket and therefore, the installation of the equipment is only expected to last as long as the particular rocket is being used at the launch pad. When the rocket is no longer used, the equipment will need to be removed and discarded.

Because of these specific circumstances, the Commissioner determined that the contested items were not intended for permanent use and remained tangible personal property after installation. Accordingly, the spaceport exemption applied to the contested items, and they were removed from the audit.

For Further Information

Virginia Department of Taxation – Ruling of Commissioner P.D. 13-134