Are the turbines, cables, foundations, and software a contractor buys to build an offshore wind farm exempt from Virginia sales and use tax under the manufacturing exemption?

Plain-English summary

A contractor asked the Department for an advisory ruling on how Virginia sales and use tax applies to the equipment it will buy to build an offshore wind farm — a project located about 24 nautical miles off the Virginia coast, in federal waters, that the contractor will transfer to a utility once it is complete. Export and array cables will run from the turbines to an onshore substation in Virginia. The contractor expected to buy most materials outside Virginia but might temporarily store them in-state, and it asked whether its purchases would be exempt under either the temporary-storage exemption for contractors or the manufacturing exemption.

Two rules set up the answer:

1. Contractors are consumers. A person who contracts to install tangible property in real estate and furnishes that property is deemed to have purchased it for use or consumption (§ 58.1-610 A), and Virginia imposes use tax on property used or consumed in the Commonwealth (§ 58.1-604). So a contractor ordinarily pays tax on what it buys and installs.

2. Producing electricity is manufacturing. Virginia exempts machinery, tools, fuel, power, energy, or supplies used directly in processing, manufacturing, refining, mining, or converting products for sale or resale (§ 58.1-609.3 2 (iii)), and a contractor may buy such items exempt. The Department's longstanding policy is that generating electricity for sale or resale is a manufacturing/processing activity (P.D. 86-218, 89-274, 02-44) — even for a producer that is not a regulated public service corporation. The contractor here fit that mold.

The "used directly" test decides each item. "Used directly" means activities that are an integral part of production — the immediate steps of the integrated process — not incidental activities like general maintenance, management, or administration (23 VAC 10-210-920 B 2). Applying it (and Virginia's rule that tax exemptions are strictly construed, with any doubt resolved against the taxpayer — Commonwealth v. Research Analysis Corp., Community Motor Bus, Golden Skillet):

• Wind turbines, array cables, and export cables — EXEMPT. They are used directly in producing the electricity: the turbines convert wind into electricity, and the cables carry it between turbines and to shore (see P.D. 14-37).
• Foundations / support structures — likely exempt. Freestanding supports become a component part of exempt machinery when they (1) are attached to exempt machinery, (2) solely support it, and (3) the machinery cannot operate without them (P.D. 11-8, 91-183). The turbine foundations "would likely qualify."
• Control software — depends on predominant use. Computer hardware and software that directs or controls a production line is exempt; hardware and software that monitors production (reports, efficiency tracking) is administrative and taxable (23 VAC 10-210-920 C 2). Because the contractor said its software would both monitor and control the turbines, the result turns on the preponderance of use — fully exempt if predominantly control, taxable if predominantly monitoring (23 VAC 10-210-920 D; see P.D. 07-173, 12-118).

To claim the exemption, the contractor must obtain and present Form ST-11A from the Department (an application on business letterhead is required). Because the ruling is advisory, it applies the exemption to the facts the contractor described and can change if the facts change.

What this means for you

Renewable-energy developers and their contractors

Virginia treats generating electricity for sale or resale as manufacturing, which opens the used-directly manufacturing exemption to the generating equipment — including wind turbines and the cabling that carries the power. This holds even if the producer is not a regulated public service corporation, and a contractor building the facility can buy the qualifying equipment tax-free (it need not be the utility itself). The equipment's function in production, not who owns it, drives the exemption.

Contractors generally

Start from the default: when you furnish and install materials into real property, you are the consumer and owe use tax on your purchases. An exemption changes that only for items used directly in an exempt process. Sort your purchases into production equipment (potentially exempt) versus support, monitoring, and administrative items (generally taxable), and remember that mixed-use items — like software that both controls and monitors — turn on their predominant use.

Anyone relying on a Virginia sales-tax exemption

Exemptions are strictly construed — any doubt is resolved against the person claiming them. Keep documentation showing how each item is used in production, and use the correct certificate: qualifying manufacturing and pollution-control purchases here require Form ST-11A, which you must apply for from the Department before buying tax-free.

Common questions

Q: Is generating electricity really "manufacturing" in Virginia?
A: Yes. The Department's longstanding position is that producing electricity for sale or resale is a manufacturing/processing activity, so machinery and equipment used directly in that production can qualify for the manufacturing exemption — even when the producer is not a regulated public service corporation.

Q: Can a contractor — not just the utility — buy the equipment tax-exempt?
A: Yes. A contractor may purchase machinery and tools used directly in industrial manufacturing or processing exempt from the tax, even though a contractor is otherwise the consumer of the materials it installs.

Q: Is the software that runs the turbines exempt?
A: It depends on how it is predominantly used. Software that primarily controls the production equipment is exempt; software that primarily monitors operations (producing reports, tracking efficiency) is administrative and taxable. Mixed-use software is classified by its preponderant use.

Q: What do I need to buy the equipment without tax?
A: You must obtain Form ST-11A from the Department, which requires an application on your business letterhead. Exemptions are strictly construed, so keep records showing each item's direct use in production.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-610 A — a contractor that furnishes and installs property in real estate is the user/consumer of it
• Va. Code § 58.1-604 — use tax on property used or consumed in Virginia
• Va. Code § 58.1-203 — the Department's authority to interpret and enforce the tax laws
• Va. Code § 58.1-609.3 2 (iii) — exemption for machinery, tools, fuel, power, energy, or supplies used directly in manufacturing/processing for sale or resale
• 23 VAC 10-210-410 A — contractors may buy exempt machinery/tools used directly in industrial manufacturing
• 23 VAC 10-210-920 B 2, C 2, D — the "used directly" definition; the computer hardware/software control-vs-monitor rule; the preponderance-of-use test

Authorities the Department relied on (described here, not linked): Commonwealth v. Research Analysis Corp., 214 Va. 161 (1973); Commonwealth v. Community Motor Bus, 214 Va. 155 (1973); Golden Skillet Corp. v. Commonwealth, 214 Va. 276 (1973) (strict construction of exemptions); and prior Department public documents P.D. 86-218, 89-274, and 02-44 (electricity production is manufacturing), P.D. 14-37 (generating equipment), P.D. 11-8 and 91-183 (supports as component parts), and P.D. 07-173 and 12-118 (software used by manufacturers).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-71

Original ruling text

June 2, 2025

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of your client (the “Contractor”) in which you request a ruling on the application of the Virginia retail sales and use tax to wind electric generating equipment constructed by the Contractor and used to produce electricity for sale or resale.

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

FACTS

The Contractor will build an offshore wind farm and transfer ownership to a utility provider once it is complete. The wind farm will be located about 24 nautical miles off the Virginia coast in federal waters. Export and array cables will connect wind turbines to an onshore substation in Virginia. The onshore substation will be constructed, owned, and operated by a utility provider. The Contractor intends to purchase the majority of the construction materials outside Virginia but may temporarily store them inside Virginia. Actual construction, however, will take place in federal waters. The Contractor will also install software programs related to the wind turbines at the onshore substation. The Contractor requests a ruling regarding whether its purchase of the materials will be exempt from the retail sales and use tax under either the temporary storage exemption for contractors or the manufacturing exemption.

RULING

Contracting

Virginia Code § 58.1-610 A states, in part, that “[a]ny person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption.” See also Title 23 of the Virginia Administrative Code (VAC) 10-210-410 A. Pursuant to Virginia Code § 58.1-604, a use tax is imposed “upon the use or consumption of tangible personal property in this Commonwealth ...”

Strict Construction of Exemptions

The Department has the authority to interpret and enforce the laws of the Commonwealth governing taxes in accordance with Virginia Code § 58.1-203. With regard to such interpretations, the Virginia Supreme Court requires strict construction of sales tax exemptions. Where there is any doubt as to the application of an exemption, the doubt is resolved against the one claiming the exemption. See Commonwealth v. Research Analysis Corporation, 214 Va. 161 (1973), Commonwealth v. Community MotorBus , 214 Va. 155 (1973), and Golden Skillet Corp. v. Commonwealth , 214 Va. 276 (1973).

Manufacturing Exemption

Virginia Code § 58.1-609.3 2 (iii) provides an exemption from the retail sales and use tax for “machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining, or converting products for sale or resale ... .” Contractors may purchase machinery and tools to be used directly in industrial manufacturing or processing exempt from the tax. See Title 23 VAC 10-210-410 A.

The Department’s longstanding policy is that the production of electricity for sale or resale is a process entitled to the industrial manufacturing and processing exemption. See Public Document (P.D.) 86-218 (11/3/1986), P.D. 89-274 (10/25/1989), and P.D. 02-44 (4/9/2002). In P.D. 02-44, the Department concluded that the industrial manufacturing and processing exemption was applicable to an entity that produced electricity for sale but was not registered with the Virginia State Corporation Commission (SCC) as a public service corporation in Virginia. The Taxpayer would appear to be eligible for the manufacturing exemption because it is not a public service corporation and is constructing a manufacturing facility.

Wind Turbines, Foundations, and Cables

The Contractor intends to purchase wind turbines, foundations, and export and array cables. The Contractor also plans to purchase software that will be installed in an onshore substation to facilitate the operations of the wind farm. The wind turbines would be rotated by the wind, creating mechanical energy which is converted into electricity. The foundations would be put into the seabed and connected to the turbines. Array cables would be used to transfer electricity between the turbines. An export cable line would then carry the electricity from the wind turbines to an onshore interface cabinet and into the onshore substation.

Title 23 VAC 10-210-920 B 2 defines the term “used directly” as meaning “those activities that are an integral part of the production of a product, including all steps of an integrated process, but not including incidental activities such as general maintenance, management, and administration.” This regulation further states:

Items of tangible personal property which are used directly in manufacturing and processing are machinery, tools and repair parts therefor, fuel, power, energy, or supplies which are indispensable to the actual production of products for sale and which are used as an immediate part of such production process.

Wind Farm Equipment

Based on the information provided, the wind turbines, array cables, and export cables will be used directly in the production of electricity. Therefore, such equipment will be exempt from retail sales and use tax under the manufacturing exemption. See P.D. 14-37 (3/19/2014).

Wind Farm Support Structures

The Department has issued several public documents that address supports for production machinery. In P.D. 11-8 (1/20/2011), the steel supports that served as legs to sustain the conveyor systems above ground level and rested upon foundations that were anchored to the ground. The conveyor systems could not function without the steel supports. The Department determined that the steel legs were a component part of the exempt conveyor systems. As such, the steel legs were used directly in an exempt processing activity and qualified for exemption from the sales and use tax. In P.D. 91-183 (8/26/1991), the Department determined that if freestanding steel legs or other supporting structures become a component part of the machinery if (1) they are attached to exempt machinery, (2) they are used solely to support exempt machinery, and (3) the machinery cannot be operated without the supports, the steel or other supporting structures. Based on this criteria, the foundations would likely qualify for the manufacturing exemption.

Software

The Contractor represents that the software it would install on servers located at the onshore substation would control the operation of the wind turbines. Title 23 VAC 10-210-920 C 2 addresses the use of computer systems in manufacturing production. Computer hardware and software used to direct or control a production line and/or quality control operations is exempt. By contrast, computer hardware and software used to monitor production operations including computers used to produce production reports, make production information available to plant personnel, and monitor the efficiency of production machinery are deemed to be administrative in nature and are taxable.

The Contractor states that the software would be used to both monitor and control the turbines. A decision as to whether the software would be exempt would depend on the preponderance of the software’s use. If the preponderance of the use is for monitoring, then it will not be exempt. Likewise, it will be completely exempt if the preponderance of use is to control the turbines. See 23 VAC 10-210-920 D. The Contractor may wish to refer to P.D. 07-173 (11/14/2007) and P.D. 12-118 (7/23/2012) for more information regarding the application of the sales and use tax to computer software used by manufacturers and industrial processors.

The Department currently requires consumers to issue Form ST-11A to make exempt purchases of qualifying pollution control equipment, machinery, and other tangible personal property from vendors. Consumers must apply to the Department for the Form ST-11A. In order to obtain this certification of exemption, an applicant should submit a written request to the Department on its business letterhead and provide the required information. For more information about Form ST-11A, please call our Contact Center at *.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at 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 and Legal Affairs, Adjudication and Resolution Division, at or **@tax.virginia.gov.

Sincerely,

Kristin L. Collins

Deputy Tax Commissioner

Commonwealth of Virginia

Under the authority of Section 58.1-1 of the Code of Virginia, I hereby delegate to Kristin Collins, Deputy Tax Commissioner, the authority to sign for me any and all rulings, appeals, offers in compromise, and penalty waivers in any instance where a conflict of interest may exist with a taxpayer. This authority shall be in effect from the date signed until revoked.

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/2085.B

Related Documents

86-218

89-274

91-183

02-44

07-173

11-8

12-118

14-37