Was a well-drilling truck rated at 26,001 pounds or more subject to Virginia retail sales and use tax?

Plain-English summary

Virginia removed retail sales and use tax assessed on the taxpayer's well-drilling truck. The business used the truck in well construction, pump and filtration work, foundation drilling, soil investigations, and geothermal projects.

Virginia's motor vehicle statutes exempted vehicles with a gross vehicle weight rating or gross combination weight rating of 26,001 pounds or more from motor vehicle sales and use tax. Earlier Department policy said that exemption did not shift those heavy vehicles into the retail sales-tax system. House Bill 1945 later clarified the result by imposing motor vehicle sales and use tax at a zero-percent rate on qualifying trucks, tractor trailers, and semitrailers.

Because the drilling truck qualified, it remained exempt from retail sales and use tax. The taxpayer had paid the uncontested audit amount, and Virginia abated the remaining truck-related tax and interest.

Common questions

Q: Did a zero-percent motor vehicle tax rate make the truck subject to retail sales tax?
A: No. Virginia said qualifying heavy vehicles continued to fall within the retail sales-tax exemption.

Q: What happened to the audit balance?
A: The Department removed the contested drilling-truck assessment and abated the remaining balance.

Citations and references

• Va. Code §§ 58.1-602, 58.1-609.1(2), 58.1-2401, 58.1-2402, and 58.1-2403.
• House Bill 1945 (2011 General Assembly Session).
• Virginia Public Document 97-482.

Subject

Motor vehicles with a GVWR or GCWR of 26,001 pounds or more qualify for exemption

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-28

Original ruling text

March 19, 2012

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you seek correction of a retail sales and use tax assessment issued for the period December 2004 through November 2007. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer provides services for all types of well construction, and water pump and water filtration system installation service and repair. In addition, the Taxpayer provides specialty drilling for construction foundations, soil investigations and geothermal requirements. At issue is the tax assessed on the purchase of a well drilling vehicle used in the Taxpayer's business operations. The auditor relied on Title 23 of the Virginia Administrative Code (VAC) 10-210-990 as a basis for the assessment.

The Taxpayer contests the assessment and claims the drilling truck is a motor vehicle as defined in Va. Code § 58.1-2401 and is licensed by the Department of Motor Vehicles (DMV) to operate on the highways in the Commonwealth. As such, the Taxpayer contends the well drilling truck is not subject to the retail sales and use tax, notwithstanding the fact that the well drilling truck qualifies for exemption from the motor vehicle sales and use tax pursuant to Va. Code § 58.1-2402.

DETERMINATION

Va. Code § 58.1-609.1 2 exempts motor vehicles, trailers, semitrailers, mobile homes and travel trailers from the retail sales and use tax. For purposes of the retail sales and use tax, "motor vehicle" is defined in Va. Code § 58.1-602 as:

a "motor vehicle" as defined in § 58.1-2401, taxable under the provisions of the Virginia Motor Vehicle Sales and Use Tax Act (§ 58.1-2400 et seq.) and upon the sale of which all applicable motor vehicle sales and use taxes have been paid.

Effective July 1, 1997, Cods of Virginia §§ 58.1-2402 and 58.1-2403 were amended to provide an exemption from the motor vehicle sales and use tax for motor vehicles with a gross vehicle weight rating (GVWR) or gross combination weight rating (GCWR) of 26,001 pounds or more. However, in Public Document 97-482, the Tax Commissioner held that these statutory amendments were not intended to replace the motor vehicle sales and use tax with the retail sales and use tax on motor vehicles that have a GVWR or GCWR of 26,001 pounds or more.

Legislation was enacted in the 2011 General Assembly Session (House Bill 1945) to clarify the intent of the law regarding the exemption of motor vehicles with a GVWR or GCWR of 26,001 or more. House Bill 1945 amends Va. Code § 58.1-2402 by adding subsection 7, which will levy the motor vehicle sales and use tax at zero percent of the sales price of each truck, tractor trailer, or semitrailer with a GVWR or GCWR of 26,001 pounds or more sold, used, or stored for use in the Commonwealth. This legislation codifies TAX's policy of not imposing the retail and sales and use tax on the sale, lease or rental of such motor vehicles. As such, motor vehicles with a GVWR or GCWR of 26,001 pounds or more continue to qualify for exemption from the retail sales and use tax pursuant to Va. Code § 58.1-609.1 2. Accordingly, the retail sales tax assessed on the contested well drilling truck will be removed from the audit.

CONCLUSION

The Taxpayer has paid the uncontested portion of the audit assessment. The remaining balance of the bill represents the tax and interest assessed on the contested well drilling truck. Based on the above determination, the Department will abate the remaining outstanding balance of the bill.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-2739931208.T