Were certified pit liners, storage tanks, and silt fence bought after July 1, 2006 still exempt pollution-control equipment?

Plain-English summary

Virginia removed all remaining tax on the contractor's certified pit liners, storage tanks, and silt fence and refunded the overpayment with interest. An earlier determination had allowed the pollution-control exemption only for purchases before July 1, 2006 because the statute appeared to contain an expiration date.

The Department later rescinded that expiration interpretation in P.D. 13-2. The 2013 General Assembly also removed the disputed date and clarified that DMME-certified pollution-control equipment for coal, oil, and gas production continued to be exempt retroactively from July 1, 2006.

Because the contractor's items were certified pollution-control equipment, Virginia directed audit staff to remove their remaining taxable measure, recompute the assessment, and refund the paid overpayment plus interest.

What this means for you

• Certification by the responsible agency was central to the exemption.
• A later Department interpretation or clarifying law can change an earlier audit result.
• Preserve equipment certifications and purchase-date records.
• The relief covered the certified pit liners, tanks, and silt fence described in this audit.

Common questions

Q: Why had post-July 2006 purchases originally been taxed?
A: The Department had read the earlier statute as expiring the exemption on July 1, 2006.

Q: What changed?
A: P.D. 13-2 rescinded that policy, and 2013 legislation clarified that the certified-equipment exemption continued.

Q: What relief did the contractor receive?
A: The remaining taxable measure was removed and the overpayment was refunded with interest.

Citations and references

• Va. Code § 58.1-609.3 9 i-ii and § 58.1-3660.
• 2013 Va. Acts ch. 10 (House Bill 1399).
• Virginia Public Documents 12-73 and 13-2.

Subject

A natural gas production contractor manages the drilling and operation of natural gas wells.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-157

Original ruling text

August 8, 2013

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

Dear *:

This will reply to your letter in which you request reconsideration of the Department's prior determination issued to * (the "Taxpayer") for the period May 2003 through April 2009. I apologize for the delay in responding to your request.

FACTS

The Taxpayer is a natural gas production contractor that manages the drilling and operation of natural gas wells. The Department audited the Taxpayer and assessed use tax on various equipment and supplies used in the operation of the business. The Taxpayer filed an administrative appeal of the audit assessment under Va. Code § 58.1-1821. A determination letter was issued on May 9, 2012 to the Taxpayer as Public Document (P.D.) 12-73.

In the Department's determination, the Taxpayer was granted partial relief for use tax and interest assessed on pit liners, tanks and silt fence that were certified by the Department of Mines, Minerals and Energy (DMME) as pollution control equipment and purchased prior to July 1, 2006. This determination was based on Va. Code § 58.1 -­ 609.3 9 ii, which provides the following exemption from the sales and use tax:

Effective retroactive to July 1, 1994, and ending July 1, 2006 , certified pollution control equipment and facilities as defined in § 58.1-3660 and which, in accordance with such section, have been certified by the Department of Mines, Minerals and Energy for coal, oil and gas production, including gas, natural gas, and coalbed methane gas. (Emphasis added.)

In accordance with the same statute, the assessment was upheld for purchases of the same items made on or after July 1, 2006 because the statutory language in Va. Code § 58.1-609.3 9 ii, states that the exemption expired on July 1, 2006. Although pit liners, tanks and silt fence were certified as pollution control equipment by the DMME, the Department ruled that these items did not qualify for the exemption if purchased on or after the exemption's expiration date of July 1, 2006. The Taxpayer requests that the Department reconsider its position on this issue.

DETERMINATION

Subsequent to the issuance of P.D. 12-73 to the Taxpayer, the Department reconsidered its policy with respect to the pollution control exemption administered by the DMME. As a result, P.D. 13-2 (1/10/13) was issued to another taxpayer that had appealed an assessment with the same issue. P.D. 13-2 rescinds the Department's determination in P.D. 12-73 with respect to the expiration of the pollution control exemption administered by the DMME. P.D. 13-2 states that the Department will continue to recognize the pollution control exemption administered by the DMME, effective retroactive to July 1, 2006.

In addition, the 2013 Virginia General Assembly enacted legislation (2013 Acts of Assembly , Chapter 10, House Bill 1399) that clarifies the pollution control equipment certified by the DMME for coal, oil and gas production continues to be exempt from the Virginia retail sales and use tax. The expiration date at issue was removed from the exemption statute by this legislation.

Based on the Department's original determination, the Taxpayer's audit was revised to reflect the removal of pit liners, tanks and silt fence that were certified by the DMME and purchased prior to July 1, 2006. The audit will now be revised to remove the balance of the taxable measure for pit liners, tanks and silt fence purchases that remain in the audit but qualify for exemption under Va. Code § 58.1-609.3 9 i.

CONCLUSION

The Taxpayer's audit will be referred to the appropriate field audit staff for revision of the audit and the assessment. The taxable measure for purchases of pit liners, storage tanks and silt fence that remains in the audit will be removed in its entirety and the audit liability will be recomputed for the audit period. A revised audit report will be mailed to the Taxpayer. The Department's records indicate that the Taxpayer has paid the revised audit assessment in full. The overpayment of the assessment plus interest from the date of payment will be refunded to the Taxpayer as soon as practicable.

The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions concerning this determination, please contact * the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5395952391.S