Were Company A's construction-material and equipment purchases eligible for a Rhode Island sales and use tax rebate through its RIIFC-financed manufacturing project?

Plain-English summary

Company A's purchases of construction materials and manufacturing, office, and computer equipment were eligible for a Rhode Island sales and use tax rebate through its Rhode Island Industrial Facilities Corporation project. The eligible amount was constrained by the project's $15 million cost ceiling.

Company A planned to construct and outfit an approximately 76,800-square-foot manufacturing facility, renovate an existing Rhode Island manufacturing facility, and acquire or lease and install manufacturing, office, and computer equipment. RIIFC expected to hold a leasehold interest that would be subleased back to Company A.

RIIFC's board had determined that the expansion qualified as a project and authorized up to $1 million of economic-development bonds to finance part of it. The resolution also contemplated reimbursement and an eligible sales-tax rebate for qualifying expenditures within the $15 million total project cost.

The ruling did not create a separate $15 million equipment-purchase allowance. Other project costs, including land acquisition and construction costs, counted toward the same ceiling and reduced the amount available for rebate-eligible purchases.

What this means for you

Manufacturers and project owners

Qualifying construction materials and equipment could receive the rebate under the approved RIIFC structure. Eligibility depended on the specific project, financing resolution, and RIIFC leasehold interest described in the ruling.

Project accountants

Track the entire project-cost ledger, not only taxable purchases. Land acquisition, construction, and other project costs had to be counted when measuring the $15 million ceiling.

Tax professionals

The final holding used “eligible for a sales and use tax rebate,” even though the request described the items as exempt. Apply the ruling according to its rebate language and Company A's facts.

Common questions

Which purchases were eligible? Construction materials, manufacturing equipment, office equipment, and computer equipment related to the project.

Was the rebate capped at $15 million of purchases? No. Eligible purchase costs could not exceed the remaining portion of the project's $15 million total after accounting for other project costs.

Did RIIFC have to own the project outright? No. The ruling anticipated that RIIFC would have a leasehold interest in the project and sublease it back to Company A.

How much bond financing was authorized? The inducement resolution authorized one or more bond series totaling no more than $1 million to finance a portion of the project.

Who could rely on the ruling? Company A, until one of the ruling's stated termination conditions occurred.

Citations and references

• R.I. Gen. Laws § 42-35-8 — authority for the declaratory-ruling request.
• R.I. Gen. Laws § 45-37.1-3(5) — definition of a qualifying RIIFC project quoted in the ruling.
• R.I. Gen. Laws § 45-37.1-9 — tax exemption for RIIFC, its projects, property, money, bonds, and notes.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 2002-02

Original ruling text

Ruling Request No. 2002-02

Declaratory Rulings

Ruling Request No. 2002-02

Request for Ruling Regarding the Application of the Exemption provided by 45-37.1-9 of the General Laws

Request for Ruling

Pursuant to Section 42-35-8 of the Rhode Island General Laws, you request on behalf of your client, "Company A", a declaratory ruling as to the exemption from Rhode Island sales and use tax for eligible costs associated with a project that will be financed through the Rhode Island Industrial Facilities Corporation ("RIIFC"), where RIIFC will have a leasehold interest in the project which will be subleased back to Company A.

Facts

The facts set forth herein are taken from the ruling request dated September 23, 2002. Incorporated by reference and made a part of this ruling request is the resolution of RIIFC authorizing the issuance and sale of economic development revenue bonds. These facts form the basis of this ruling.

Company A is a subchapter S corporation organized under the laws of State X. Company A is planning to expand its Rhode Island operations by constructing and outfitting an approximately 76,800 square foot manufacturing facility and renovating an existing manufacturing facility in Rhode Island, and acquiring (whether by lease or purchase) and installing manufacturing equipment, office equipment and computer equipment at such facilities (hereinafter referred to as the "Project"). The total cost of the Project is estimated at $15,000,000.

On August 15, 2002, the Board of Directors of RIIFC determined that Company As proposed Rhode Island expansion is consistent with the definition of "project" as defined in Section 45-37.1-3 of the Rhode Island General Laws and adopted an inducement resolution authorizing RIIFC to issue and sell one or more series of economic development bonds in an aggregate amount not to exceed $1,000,000 to finance a portion of the Project, including reimbursement and eligible sales tax rebate for qualifying expenditures up to the maximum amount of $15,000,000.

It is anticipated that RIIFC will have a leasehold interest in the Project.

Ruling Requested

Company A respectfully requests that the State of Rhode Island issue a declaratory ruling stating that the materials purchased or leased and installed at the Project up to a maximum amount of $15,000,000, in which RIIFC will have a leasehold interest, will be exempt from Rhode Island Sales and Use Tax.

Discussion

R.I.G.L. 45-37.1-9 reads in pertinent part as follows:

". . . [RIIFC] is not 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 is [RIIFC] required to pay any state taxes of any kind and [RIIFC], 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 their sale are at all times free from taxation of every kind by the state . . ."

R.I.G.L. 45-37.1-3(5) defined "Project" as follows:

" . . . 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 purposes . . ."

RIIFC and its projects are exempt from taxation. The inducement resolution describes the Project as the acquisition of land, the construction and outfitting of an approximately 76,800 square foot manufacturing facility thereon, the renovations of Company As property located in Rhode Island, and the acquisition (whether by lease or purchase) and installation of manufacturing equipment, office equipment and computer equipment at both the premises. The stated Project cost is $15,000,000.

The sales and use tax rebate shall apply to the purchase of construction materials, manufacturing, office, and computer equipment to the extent of $15,000,000 of the total Project cost not previously expended on other costs of the Project such as land acquisition.

Ruling

Purchases relating to construction materials, manufacturing equipment, office equipment, and computer equipment shall be eligible for a sales and use tax rebate to the extent that such costs do not exceed $15,000,000, taking into account other Project costs such as land acquisition and construction costs.

This ruling may be relied upon by Company A 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

OCTOBER 29, 2002**