Does Virginia's pollution control equipment sales tax exemption still apply if the certified equipment is rented, or doesn't stay permanently with the project?

Plain-English summary

A contractor that builds and repairs wastewater and sewage treatment plants for Virginia localities obtained DEQ certifications for equipment used on several projects, qualifying that equipment as pollution control equipment. Along with the resulting ST-11A exemption certificate, the Department sent a "Notice of Sales Tax Exemption" containing restrictions -- most notably, language stating the equipment must "remain with the project" and that the exemption "does not apply to... purchases or rentals... used in performance of this contract." The contractor asked the Department whether those restrictions meant certified equipment lost its exemption if it was rented, or didn't stay permanently at one project site.

The Department said no. Once DEQ, the state agency responsible for evaluating pollution control equipment, certifies specific property, that certification is what controls the sales tax exemption under Va. Code § 58.1-609.3(9) -- the Department's own cover-letter language and restrictions can't cut back or override an actual DEQ certification. The Notice's cautionary language is meant to help taxpayers understand what kinds of property a typical DEQ certification does and doesn't cover, not to impose an independent, additional restriction on top of a certification DEQ has already granted. So certified equipment that is rented, or that moves between projects rather than remaining permanently at one site, can still qualify for the exemption -- what matters is the DEQ certification itself, not how the Notice describes typical usage patterns. Equipment that was never certified by DEQ, of course, gets no exemption regardless.

What this means for you

Contractors renting or moving certified pollution control equipment between job sites

A Department "Notice of Sales Tax Exemption" cover letter warning that the exemption doesn't apply to rentals or equipment that doesn't remain with a project describes general expectations, not a binding override of an actual DEQ certification. If DEQ has certified your specific equipment, that certification controls even if you rent the equipment or use it across multiple projects.

Businesses in wastewater, sewage treatment, and similar environmental infrastructure work

Keep your DEQ certifications well documented for each piece of equipment. That paperwork, not the Department's cover-letter restrictions, is what determines your sales tax exemption if the Department later questions a rental or multi-project use.

Common questions

Q: Does Virginia's pollution control equipment exemption require the equipment to permanently remain at one project?
A: No -- despite cover-letter language suggesting equipment must "remain with the project," the Department confirmed that a valid DEQ certification controls the exemption regardless of whether the equipment stays at a single site.

Q: Can rented pollution control equipment qualify for the sales tax exemption?
A: Yes, if it has been properly certified by DEQ -- rental status alone doesn't disqualify certified equipment from the exemption, notwithstanding restrictive language in the Department's Notice of Sales Tax Exemption.

Q: What actually controls whether pollution control equipment is tax-exempt?
A: The DEQ certification itself. Property that DEQ certifies as pollution control equipment is exempt; property that was never certified gets no exemption, regardless of how it's used.

Citations and references

• Va. Code § 58.1-609.3(9) (exemption for certified pollution control equipment and facilities)
• Va. Code § 58.1-3660 (definition and certification of pollution control equipment)
• 23 VAC 10-210-2090 (pollution control equipment exemption regulation)

Subject

Exemption: Pollution Control Equipment - Restrictions in Notice of Sales Tax Exemption

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-1

Original ruling text

January 6, 2023

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will respond to your letter submitted on behalf of * (the “Taxpayer”) requesting a ruling on the application of the retail sales and use tax to certified pollution control equipment and facilities. I apologize for the delay in responding to your correspondence.

FACTS

The Taxpayer, a business entity located in Virginia, contracts to construct and repair waste water and sewage treatment plants for Virginia localities. The Taxpayer obtained certifications from the Virginia Department of Environmental Quality (DEQ) that certain tangible personal property for several projects qualified as pollution control equipment. The Department issued the corresponding ST-11A exemption certificate along with a “Notice of Sales Tax Exemption” (the “Notice”), which contained several restrictions on the use of the sales tax exemption. Most notably, the Notice states that the equipment must “remain with the project” and “the exemption does not apply to: purchases or rentals… used in performance of this contract.” The Taxpayer requests a ruling on the application of the exemption to property that has been certified by DEQ but is rented or does not remain permanently with the project.

RULING

Virginia Code § 58.1-609.3 (9) provides an exemption from the retail sales and use tax for “[c]ertified pollution control equipment and facilities as defined in § 58.1-3660, except for any equipment that has not been certified to the Department of Taxation by a state certifying authority pursuant to such section.”

Title 23 of the Virginia Administrative Code 10-210-2090 addresses the sales and use tax exemption for pollution control equipment and facilities. Subsection B defines “pollution control equipment and facilities” as “any real or tangible personal property, equipment, facilities or devices used primarily for the purpose of abating or preventing air or water pollution in Virginia.” The regulation goes on to say that “[a]ny property which is certified as used for these purposes is not subject to the tax…” [Emphasis added.] Under this policy, if the property used directly to abate pollution has been certified as pollution control equipment by a state certifying agency, it is exempt from the Retail Sales and Use Tax.

In this case, DEQ is the state agency authorized to verify pollution control equipment for purposes of the exemption. As such, DEQ is the agency responsible for evaluating and issuing the appropriate certification. The Department’s position is that any property certified by the appropriate state certifying authority as pollution control equipment and facilities qualifies for exemption from the tax. Further, the limitations indicated on the Notice do not prevent the Taxpayer from engaging in tax exempt transactions for equipment or property used to abate or prevent pollution that has been certified by the appropriate agency.

However, any property that has not been certified by the appropriate state agency would not benefit from the exemption. As such, the cover letter provided with the exemption certificate is intended to provide guidance as to what types of property may not be included in a DEQ certification but is not intended to override such certification.

This response is based on the facts provided as summarized above. Any change in facts or introduction of new facts may lead to a different result.

The Code of Virginia sections and regulation cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at , or via email at **.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3657-C