My facility uses chemicals along with certified pollution control equipment to treat wastewater -- are the chemicals themselves exempt from sales and use tax?

Plain-English summary

A paper mill that operates its own wastewater treatment facility in Virginia was audited for September 2015 through December 2018 and assessed tax on untaxed purchases, including eight chemicals used at the treatment facility. The taxpayer contested the tax on those chemicals, arguing they're exempt because they're used to abate or control water pollution.

The pollution control exemption reaches materials, not just physical equipment -- but only once certified. Va. Code § 58.1-609.3 9 exempts "certified pollution control equipment and facilities," and Va. Code § 58.1-3660 B defines that broadly to include "any property, including real or personal property, equipment, facilities, or devices" used primarily to abate or prevent air or water pollution -- as long as the appropriate state or local certifying authority has certified that specific property as meeting the state's pollution abatement requirements. Critically, 23 VAC 10-210-2090 C makes clear the exemption doesn't apply until that certification actually happens.

The chemicals were flagged for lack of certification, not because chemicals can never qualify. The auditor included the eight chemicals in the assessment because they weren't equipment themselves and the taxpayer hadn't shown they were certified. On appeal, the taxpayer provided a letter from Virginia's State Water Control Board certifying certain projects and equipment used to construct its treatment plant, and pointed to the Department's own prior ruling, P.D. 10-262, where the Department allowed a refund for chemicals used in a wastewater system BECAUSE the definition of certified pollution control property is broad enough to include chemicals, so long as they're properly certified and that certification is provided to the Department.

Result. Because the taxpayer provided documentation certifying that the specific chemicals at issue are used directly in pollution control, the Department agreed to remove the properly certified chemical purchases from the audit, returning the case to audit staff to issue a revised report and bill.

What this means for you

Businesses operating on-site pollution control equipment or treatment facilities

Chemicals and other consumable materials used in your pollution control operations CAN qualify for Virginia's sales and use tax exemption -- it isn't limited to physical equipment. But you must obtain and provide certification from the appropriate state or local certifying authority (like the State Water Control Board for water pollution) covering that specific property; the exemption simply does not apply until certification happens.

Businesses under audit for untaxed pollution-control-related purchases

If your auditor flags chemicals or supplies used with certified pollution control equipment, gather documentation showing the specific items were certified (not just the equipment around them) -- that's the missing piece that turns a taxable purchase into an exempt one.

Common questions

Q: Are chemicals used in my pollution control system automatically exempt from Virginia sales and use tax?
A: No -- the chemicals must be specifically certified by the appropriate certifying authority (such as the State Water Control Board) as property used to abate or control pollution. Without that certification, they're taxable.

Q: Does the pollution control exemption cover only physical equipment, or can it cover consumable materials too?
A: It can cover materials like chemicals -- Virginia's definition of certified pollution control property is broad enough to include any property used primarily to abate pollution, as long as it's properly certified.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-609.3 9 -- exemption for certified pollution control equipment and facilities
• Va. Code § 58.1-3660 B -- broad definition of certified pollution control equipment and facilities, including any property used primarily to abate pollution
• 23 VAC 10-210-2090 C -- the exemption does not apply until the property has been certified

Prior rulings the Department relied on (described here, not linked): P.D. 10-262 (12/14/2010) -- the Department allowed a refund for chemicals used in a wastewater system, based on the broad statutory definition, so long as the chemicals were certified and that certification was provided.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-76

Original ruling text

August 13, 2024

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 the retail sales and use tax assessment issued for the period September 2015 through December 2018. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer operated a paper mill that contained a wastewater treatment facility in Virginia. Following an audit by the Department, the Taxpayer was issued an assessment for tax, penalty, and interest due on untaxed purchases. The Taxpayer contests the portion of the assessment related to the untaxed purchases of eight chemicals, claiming such purchases are exempt from taxation because the chemicals are used in its facility to abate or control pollution.

DETERMINATION

Virginia Code § 58.1-609.3 9 provides an exemption from the 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 or subdivision certifying authority pursuant to such section .” [Emphasis added]. Virginia Code § 58.1-3660 B then defines certified pollution control equipment and facilities to include:

[A]ny property, including real or personal property, equipment, facilities, or devices, used primarily for the purpose of abating or preventing pollution of the atmosphere or waters of the Commonwealth and which the state certifying authority or subdivision certifying authority having jurisdiction with respect to such property has certified to the Department of Taxation as having been constructed, reconstructed, erected, or acquired in conformity with the state program or requirements for abatement or control of water or atmospheric pollution or contamination…

Subsection C of Title 23 of the Virginia Administrative Code 10-210-2090 states that the exemption for pollution control equipment and facilities is not applicable until the property for which the exemption is sought has been certified by an officially certified authority.

The chemicals at issue were included in the audit because they were not pollution control equipment. In addition, the Taxpayer lacked documentation to show that they are certified pollution control equipment. With its appeal, the Taxpayer provided a letter from the State Water Control Board that certifies certain projects and equipment used to control or abate water pollution in the construction of its treatment plant.

The Taxpayer further claims that the chemicals at issue are exempt from tax because they are used with the certified equipment to abate or control water pollution. To support its position, it cites Public Document (P.D.) 10-262 (12/14/2010). In this public document, a business contested the assessment of tax on chemicals purchased for use in its wastewater system. As indicated above, the definition set forth in Virginia Code § 58.1-3660 B includes any property used for controlling pollution. Based on the inclusiveness of the definition, the Department ruled in P.D. 10-262 that the business was eligible for a refund of the tax paid for chemicals so long as the chemicals were certified by the appropriate agency and such certification was provided to the Department. In this case, the Taxpayer has provided documentation certifying the chemicals are used directly in pollution control.

In accordance with this determination, the purchases for chemicals that have received appropriate certification as property used for pollution control will be removed from the audit. The assessment will be returned to the audit staff to remove the contested purchases. A revised audit reported showing revised tax and penalty will be issued to the Taxpayer. Once the revisions are complete, an updated bill, with interest accrued to date, will be sent to the Taxpayer. The Taxpayer should pay the amount due within 30 days from the date on the bill to avoid the accrual of additional interest or possible collection action.

The Code of Virginia sections, regulation, and public document cited are available online at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s website. If you have any questions about this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at (804) ***.

Sincerely,

Kristin L. Collins

Deputy Tax Commissioner

Commonwealth of Virginia

AR/3251.F

Related Documents

10-262