Were Company-owned or leased improvements and materials for an EDC advanced-products manufacturing project exempt from Rhode Island sales and use tax, and how was the exemption claimed?

Plain-English summary

Qualifying improvements and materials for the Company's EDC advanced-products project were exempt from Rhode Island sales and use tax, assuming the EDC adopted the required resolution. The Company could hold title or a leasehold or license interest, but it had to claim the exemption through the refund procedure specified in the ruling.

The project involved an advanced-products facility for manufacturing and packaging photoresist products and an advanced lithography center with research and development laboratories. It included buildings, parking, furniture, fixtures, machinery, equipment, partitions, cabling, electronic hardware and software, and other project personal property.

Office supplies and common office items with a useful life under one year were excluded, as were goods or inventory held for sale in the ordinary course of business.

The Company had to pay or cause payment of sales and use tax on Purchased Materials, then submit a written refund request in a form acceptable to the Division. The request had to include proof that Rhode Island tax was paid and supplier invoices for every item included in the claim.

What this means for you

EDC project companies

An exemption determination did not authorize buying everything tax-free at checkout. This order required the Company to pay first and seek a refund with documentation.

Purchasing and accounts-payable teams

Retain invoices by supplier and item, proof of tax payment, project-use records, and evidence of the Company's title, leasehold, or license interest.

Tax professionals

Confirm the EDC board resolution, project definition, excluded property, and current refund form and deadline before preparing a claim.

Common questions

Did the EDC have to hold title to the property? No. Company title, leasehold, or license interests could qualify under the stated EDC structure.

Could the Company give vendors exemption certificates instead of paying tax? The ruling required the Company to pay the tax and request a refund afterward.

What documents had to accompany the refund request? Proof of Rhode Island sales or use tax payment and supplier invoices for all Purchased Materials in the claim.

What property was excluded? Short-lived office supplies and common office items, plus goods or inventory held for ordinary sale.

Who could rely on the ruling? The Company identified in the request, subject to the resolution, refund procedure, and validity conditions.

Citations and references

• R.I. Gen. Laws § 42-35-8 — authority for the declaratory-ruling request.
• R.I. Gen. Laws § 42-64-3(p) — historical definition of an EDC project quoted in the order.
• R.I. Gen. Laws § 42-64-20(b) — EDC exemption from state and local taxation.
• R.I. Gen. Laws § 42-64-20(c) — extension of the project-property exemption when a lessee or sublessee holds title, subject to an EDC board resolution.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1997-05

Original ruling text

Ruling Request No. 97-05

Declaratory Rulings

Ruling Request No. 97-05

Re: Request for Ruling Regarding the Application of The Exemption Provided by R.I.G.L. section 42-64-20(c) for Purchases of Certain Personal Property

Request for Ruling

On behalf of your client ("Company"), you request a ruling pursuant to the provisions of Section 42-35-8, Rhode Island General Laws, 1956 (as amended), as to the exemption from Rhode Island sales and use tax of the building and construction materials, personal property, furniture, fixtures, machinery and equipment (including all computer hardware and software systems), the legal title to, and/or contractual right to use of which will be in the name of the Company or an affiliate of the Company, in connection with a project to be developed on land in Rhode Island, with respect to which the Rhode Island Economic Development Corporation (created under Chapter 64 of Title 42, R.I.G.L. (the "EDC")) will be the landlord and the Company will be the tenant.

Facts

The Company and EDC are parties to a development agreement dated July 18, 1997 under which The Company plans to develop and construct an advanced products facility to house manufacturing and packaging operations for the Company's advanced photoresist products and an advanced lithography center containing new labs supporting technology and development (the "Project Site"). The Project Site will be located in Rhode Island and will consist of one or more buildings (including all personal property, furniture, fixtures, machinery and equipment), together with parking and related improvements (collectively, the "Improvements") which are collectively intended to be used at the Project Site by the Company (collectively, the "Project"). Construction and development of the project and payment of all Project related costs will be the responsibility of the Company. The land on which the Project will be located, shall be leased to the Company under a ground lease (the "Ground Lease") to be entered into between EDC and the Company. Under the Ground Lease, the Company will lease the land to be used in the Project from EDC. The Company will then construct and equip the Project (including the Improvements) on the leased land. All materials used in the construction, development and operation of the Project (other than office supplies or common office items which have a useful life of less than one year), including without limitation all furniture, fixtures, machinery, equipment, partitions, cabling, electronic hardware and software and any other items of personal property acquired for use with respect to the Project (collectively, "Purchased Materials") will constitute part of the Project.

Ruling Requested

The Purchased Materials as set forth and described under the caption "Facts" above, so long as they do not include goods or inventory held for sale in the ordinary course of business, constitute part of an EDC Project as set forth in Section 42-64-3(p) of the R.I.G.L. Assuming the EDC makes the determination required by Section 42-64-20(c), the Improvements and the Purchased Materials that will be acquired and installed to support the Project, the legal title to which will be in the name of the Company or in which the Company will have a leasehold interest or license, will be exempt from Rhode Island sales and use tax to the same extent as if legal title of such Improvements and Purchased Materials were in the name of the EDC.

Discussion

The pertinent provisions of the Rhode Island General Laws read as follows:

42-64-3(p). "Project" or "port project" means the acquisition, ownership, operation, construction, reconstruction, rehabilitation, improvement, development, sale, lease, or other disposition of, or the provision of financing for, any real or personal property (by whomever owned) or any interests therein, including without limiting the generality of the foregoing, any port facility, recreational facility, industrial facility, airport facility, pollution control facility, utility facility, solid waste facility, or any other facility, or any combination of two (2) or more of the foregoing, or any other activity undertaken by the corporation. (emphasis added)

42-64-20(b). The corporation shall not be required to pay state taxes of any kind, and the corporation, its projects, property, and monies and, except for estate, inheritance, and gift taxes, any bonds or notes issued under the provisions of this chapter and the income (including gain from sale or exchange) therefrom shall at all times be free from taxation of every kind by the state and by the municipalities and all political subdivisions of the state.

. .

42-64-20(c). For purposes of the exemption from taxes and assessments upon or in respect of any project under subsections (a) or (b) of this section, the corporation shall not be required to hold legal title to any real or personal property, including any fixtures, furnishings or equipment which are acquired and used in the construction and development of such project, but such legal title may be held in the name of a lessee (including subleases) from the corporation. Such property, which shall not include any goods or inventory used in such project after completion of construction, shall be exempt from taxation to the same extent as if legal title of such property were in the name of the corporation, provided that the board of directors of the corporation adopts a resolution confirming use of such tax exemption for such project by such lessee. Such resolution shall include findings that (1) the project is a project of the corporation under section 42-64-3(p) and (2) it is in the interest of the corporation and of the project that legal title be held by the lessee from the corporation. In adopting any such resolution, the board of directors may consider any factors it deems relevant to the interests of the corporation or the project including, for example, but without limitation, reduction in potential liability or costs to the corporation or designation of the project as a "Project of Critical Economic Concern" pursuant to Chapter 117 of this title.

Chapter 64 of Title 42 entitled "Economic Development Corporation" was enacted in 1974. Under subsection (b) of section 42-64-20, EDC was granted an exemption from all state taxes except for estate, inheritance and gift taxes. R.I.G.L. section 42-64-20 was amended in 1995 by adding subsection (c). That new section allows EDC to "assign" its tax exemption granted under subsection (b) to its lessee (or sublease). In order to make such an assignment the board of directors must, by resolution, find that (1) the project is a project of the EDC under Section 42-64-3(P) and (2) that it is in the interest of the EDC and the project that legal title be held by the lessee (or sublease) of the EDC.

Since the Purchased Materials used in the Project as that term is defined in R.I.G.L. section 42-64-3(p), supra, would be exempt if title vested in EDC, those same purchases would likewise be exempt if EDC adopts a resolution making the aforementioned findings thereby "assigning" its exemption to the Company.

Ruling

Assuming that EDC adopts the resolution required by Section 42-64-20(c), the Purchased Materials as set forth and described under the caption "Facts," so long as they do not include goods or inventory held for sale in the ordinary course of business, constitute part of an EDC Project as set forth in Section 42-64-3(p) of the R.I.G.L. The Improvements and the Purchased Materials that will be acquired, installed and used at the Project, the legal title to which will be in the name of the Company or in which the Company will have a leasehold interest or license, will be exempt from Rhode Island sales and use tax to the same extent as if legal title of such Improvements and Purchased Materials were in the name of the EDC.

The foregoing ruling will be subject to the Company complying with the following refund procedure. The Company shall pay or cause to be paid the sales and use tax on the Purchased Materials and shall submit a written request for a refund of such tax to the Division of Taxation, such refund request to be in a form satisfactory to the Division of Taxation and shall be accompanied by (I) proof of payment of the Rhode Island sales and use tax, and (II) copy of supplier invoices for all Purchased Materials for which a refund is sought.

This ruling may be relied upon by the Company and shall be valid until expressly revoked or until the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying situations described above change.

**R. Gary Clark

Tax Administrator**

August 18, 1997