Were airline ground-support equipment, repair parts, labor, and maintenance contracts exempt from Virginia sales tax?

Subject

Airline ground-support equipment and maintenance exemption

Plain-English summary

Ground-support equipment and repair parts were exempt when sold to a qualifying scheduled common-carrier airline for direct use in its airline service. The seller had to obtain a properly completed Form ST-20 exemption certificate.

Virginia treated tow bars, baggage-handling equipment, ground power units, pushbacks, belt loaders, and related parts as directly used in qualifying common-carrier service. Airlines that did not meet the common-carrier and scheduled Virginia-service requirements did not receive the exemption.

Separately stated installation and repair labor was exempt. Labor-only maintenance contracts were nontaxable, parts-only contracts were taxable unless the parts independently qualified, and combined parts-and-labor contracts were ordinarily treated as 50% taxable parts and 50% nontaxable labor—again subject to any exemption for the parts.

What this means for you

• Confirm the airline's statutory common-carrier and Virginia service qualifications.
• Match each part or equipment item to direct airline-service use.
• Separately state installation and repair labor.
• Keep Form ST-20 to support exempt sales.

Citations and references

• Va. Code §§ 58.1-609.3 6 and 58.1-609.5 2; 23 VAC 10-210-910.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-161

Original ruling text

September 3, 2014

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling as to the retail sales and use application to ground support equipment parts and maintenance sold to airlines. I apologize for the delay in responding to your request.

FACTS

The Taxpayer is in the business of buying and selling ground support equipment parts, such as tow bars, belts, PCA hose and ducting, PCA inlet adapters, tires, and other baggage handling equipment parts, to airlines. The Taxpayer also repairs and maintains ground support equipment that is owned by the airlines. This equipment includes baggage carts, tow bars, ground power units, pushbacks used for moving aircraft, and belt loaders used for moving baggage to the aircraft. The Taxpayer charges the airlines for both the parts and the labor involved in repairing and maintaining the equipment. The Taxpayer requests a ruling as to what equipment would be sales tax exempt.

RULING

Virginia Code § 58.1-609.3.6 provides a retail sales and use tax exemption for the following:

Tangible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports at least one day per week, for use or consumption by such airline directly in the rendition off its common carrier service.

In addition, the Virginia Supreme Court ruled in the case of Commonwealth of Virginia v. United Airlines, Inc. , 219 Va. 374 (1979), that equipment necessary for loading and unloading and the handling of passenger baggage is used directly in the rendition of an airline's common carrier service. Therefore, the Court concluded that purchases of such equipment by an airline qualifies for the exemption from the sales tax currently found in Va. Code § 58.1-609.3.6.

Accordingly, provided the airline purchasing the parts is engaged in intrastate, interstate, or foreign commerce, and meets the statutory requirements of providing scheduled air service to one or more Virginia airports at least one day a week, the ground support equipment used by the airlines would be exempt from the tax. Likewise, parts sold by the Taxpayer to the airlines for repair to exempt ground support equipment would also be exempt. Airlines that do not qualify as common carriers, and do not meet the statutory requirements, would not enjoy a sales and use tax exemption on their ground support equipment.

With regard to the labor for installing ground support equipment parts, as a general rule, separately stated installation labor charges are tax exempt. Separately stated repair labor charges are also tax exempt. See Va. Code § 58.1-609.5.2.

In the event the Taxpayer has entered into maintenance contracts with their customers, the sales tax application to maintenance contracts is addressed in Title 23 Virginia Administrative Code (VAC) 10-210-910. Maintenance contracts that provide solely for the furnishing of repair labor are service contracts and are not taxable. Maintenance contracts that provide solely for the furnishing of repair or replacement parts, and do not include labor to install them, represent the sale of tangible personal property and are subject to the tax. This applies provided the parts are not exempt as is the case when the Taxpayer repairs exempt ground support equipment. Maintenance contracts that provide for parts and labor are deemed to be 50% parts and 50% labor and should be taxed based on 50% of the value of the contract, provided the parts do not qualify for a statutory sales tax exemption.

To support an exempt sale, the Taxpayer must obtain from the airline a properly completed certificate of exemption. The Department has issued Form ST-20 as the certificate of exemption used by certain public service corporations, including airlines operating in intrastate, interstate, or foreign commerce.

I trust that the foregoing responds to your inquiry. The Virginia Code sections and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's website. If you have any questions concerning this ruling, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5634965840.R