Were equipment, improvements, computer systems, and replacement property installed in a RIIFC headquarters project exempt from Rhode Island sales and use tax?

Plain-English summary

Equipment and improvements, including replacement property, were exempt from Rhode Island sales and use tax when RIIFC acquired title or held a leasehold or license interest, installed the property at the project, and leased or subleased it to the Company.

The Company planned a Rhode Island headquarters project financed with taxable development-revenue bonds. The project included renovation, acquisition, and equipping of office buildings, furniture, fixtures, other equipment, computer hardware and software, and replacements.

RIIFC would own some property outright and hold a leasehold or license interest in other property. It would then lease or sublease the equipment and improvements to the Company for headquarters use or another lawful commercial, office, or industrial purpose.

The Division explained that RIIFC and its projects were exempt to the extent RIIFC purchased or leased the property. RIIFC's purchase of replacement equipment and its later project lease of the qualifying items to the Company were likewise exempt.

What this means for you

RIIFC project companies

The exemption depended on RIIFC having the stated title, leasehold, or license interest and the property being installed and leased as part of the approved project.

Technology and facilities teams

The project description included building materials, furniture, fixtures, computer hardware and software, other equipment, and replacement property.

Accountants and tax professionals

Document RIIFC's specific property interest, installation at the project, lease or sublease to the Company, and the relationship of replacements to the approved project.

Common questions

Did RIIFC have to hold outright title to every item? No. A leasehold or license interest could also support the exemption under the stated facts.

Were replacement purchases covered? Yes, when RIIFC purchased qualifying replacement equipment as part of the project.

Was RIIFC's lease of exempt property to the Company taxable? No. The discussion treated that project lease as exempt.

What uses were contemplated? Headquarters use and any lawful commercial, office, or industrial purpose described in the project documents.

Who could rely on the ruling? The Company identified in the request, subject to the order's stated validity conditions.

Citations and references

• R.I. Gen. Laws § 45-37.1-3 — RIIFC project definition cited in the order.
• R.I. Gen. Laws § 45-37.1-9 — tax exemption for RIIFC and its projects.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1998-01

Original ruling text

Ruling Request No. 98-01

Declaratory Rulings

Ruling Request No. 98-01

Re: Request for Ruling Regarding the Application of the Exemption Provided by R.I.G.L. 45-37.1-9 for Purchases of Certain Personal Property

Request for Ruling

Pursuant to R.I.G.L. 44-35-8, you request, on behalf of your client, a corporation organized under the laws of the State of Rhode Island ("Company"), a declaratory ruling as to the exemption from Rhode Island Sales and Use Tax of the building and construction materials, personal property, furniture, fixtures and equipment (including all computer hardware and software systems) and replacements, additions and enhancements thereof, the legal title to which will be in the name of the Rhode Island Industrial Facilities Corporation ("RIIFC") or in which RIIFC will have a leasehold, license or other interest in connection with a project in Rhode Island and which will be leased (or subleased as applicable) to Company. RIIFC passed an inducement resolution with respect to the Project on May 13, 1998.

Facts

The facts set forth herein are taken from the ruling request of company dated June 26, 1998. Incorporated by reference and made a part of this ruling request is the resolution of RIIFC dated July 8, 1998 authorizing the issuance and sale of an economic development revenue bond, the inducement resolution if RIIFC to proposed industrial facilities for Company dated May 13, 1998 and an amendment thereto dated July 8, 1998

Company and RIIFC intend that RIIFC will issue a series of taxable development revenue bonds (the "Bonds"). Company plans to use bond proceeds to finance the renovation, acquisition, and equipping of Company's facilities , including building and construction materials for one or more office buildings (including all furniture, fixtures and equipment and replacements thereto), certain computer hardware and software to be purchased, leased or licensed in the RIIFC's name to support the activities located on the Premises (collectively, the "Equipment and Improvements"), which are intended to be used as a headquarters by Company, but may be used for any lawful commercial, office or industrial purpose (the "Facility") located in Rhode Island (the "Premises"), such Equipment and Improvements will be leased or subleased to Company, pursuant to a lease agreement dated on or about July 1, 1998 (the "Lease")(the Equipment and Improvements, the Facility and the Premises are collectively referred to as the "Project"); and

RIIFC will take title outright to some equipment and improvements and have a leasehold interest or license in others. It will lease or sublease the equipment and or improvements to Company.

By resolution, the Board of Directors of RIIFC has made or will make the following findings:

1. The Project is consistent with the definition of Project defined in Section 45-37.1-3 R.I.G.L.;

Declaratory Ruling Requested

The Equipment and Improvements including the replacements thereto as set forth and described under the caption "Facts" above constitute part of a RIIFC Project as set forth in Section 45-37.1-3 of the R.I.G.L. Therefor, the Equipment and Improvements thereto that will be acquired or leased and installed at the Project, the legal title to which will be in the name of RIIFC or in which RIIFC will have a leasehold or license interest, will be exempt from Rhode Island Sales and Use Tax.

Discussion

Section 45-37.1-9 provides in pertinent part, as follows:

"...the corporation shall not be required to pay any taxes or assessments upon or in respect of a project, or any property or moneys of the corporation levied by a municipality or political subdivision of the state, nor shall the corporation be required to pay any state taxes of any kind and the corporation, its projects, property, and moneys and any bonds and notes issued under the provisions of this chapter, their transfer and the income therefrom, including any profit made on the sale thereof, shall at all times be free from taxation of every kind by the state..." (emphasis supplied)

The term "project" is defined in Section 45-37.1-3 as:

"Project" means any land and any buildings or other improvement, and all real and personal properties including but not limited to machinery and equipment, or any interest therein, whether or not now in existence or under construction, which shall be suitable for manufacturing, warehousing, or other commercial or industrial purpose..."(emphasis supplied)

Pursuant to R.I.G.L. 45-37.1-9, supra, RIIFC and its projects are exempt from taxation to the extent that RIIFC purchases or leases the equipment and improvements. To the extent that RIIFC purchases replacement equipment, those purchases would also be exempt from the sales and use tax. The subsequent lease of those items to Company, as part of the Project would likewise be exempt.

Ruling

The equipment and improvements, including replacements thereto, acquired by title or leased to RIIFC to be installed at the Project and leased or subleased to Company will be exempt from the sales and use tax.

This ruling may be relied upon by 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**

July 23, 1998