Could Virginia Taxation exempt or refund tax on pollution-control equipment before a statutory certifying authority approved it?

Plain-English summary

Virginia Taxation could not grant the pollution-control exemption or a refund without certification from the proper state authority. The taxpayer said DEQ had misinterpreted certification requirements and asked the tax agency for help obtaining approval.

The exemption statute required qualifying property to be certified to the Department of Taxation by a listed certifying authority. DEQ administered certification for several of those boards. Taxation's role began after certification; it lacked authority to certify the equipment itself or award the exemption without that prerequisite.

The taxpayer therefore had to pursue the certification question with DEQ. If it later obtained certification for some or all equipment, it could seek a refund or credit, subject to the three-year sales-and-use-tax refund period.

What this means for you

• Obtain pollution-control certification before relying on the tax exemption.
• Direct technical certification disputes to the responsible certifying authority.
• Keep purchase invoices and proof of tax paid while certification is pending.
• Track the three-year refund deadline even if another agency controls approval.

Common questions

Q: Could the Department of Taxation certify the equipment?
A: No. Certification belonged to the authorities identified by statute.

Q: Could Taxation grant the exemption without certification?
A: No.

Q: Was a later refund possible?
A: Potentially, after certification, but still within the three-year refund period.

Citations and references

• Va. Code §§ 58.1-3660(B) and 58.1-609.3(9)(i).
• 23 VAC 10-210-2090(C).
• Virginia Public Documents 96-324 (November 8, 1996) and 07-173 (November 14, 2007).

Subject

DEQ guidance to obtain pollution control certification of its equipment

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-172

Original ruling text

October 6, 2011

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your request for a ruling regarding the application of the certified pollution control exemption to equipment purchased by * (the "Taxpayer"). I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a provider of environmental, health, safety, and engineering services. The Taxpayer states that it is unable to obtain from the Virginia Department of Environmental Quality ("DEQ") pollution control certification for equipment that it claims was purchased for pollution control purposes. Without certification from DEQ, the equipment does not qualify for the sales and use tax exemption for certified pollution control equipment and facilities. The Taxpayer suggests that DEQ has misinterpreted the state's pollution control certification requirements and requests guidance from the Department for obtaining certification of the equipment at issue. The Taxpayer also seeks information from the Department with regard to claiming credits for sales and use taxes previously paid on pollution control equipment that it believes should be certified as pollution control equipment by DEQ.

RULING

In its ruling request, the Taxpayer references the exemption language contained in the Virginia sales and use tax exemption certificate, Form ST-11. However, this ruling is based on the statutory language in the Code of Virginia and the Department's pollution control regulation for sales and use tax, Virginia Administrative Code (VAC) 10-210-2090.

Virginia Code § 58.1-609.3 9 i provides a sales and use tax exemption 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 ...."

Virginia Code § 58.1-3660 B defines, in part, certified pollution control equipment and facilities to be:

any 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 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 ....

The same statute states that state certifying authorities include the State Water Control Board, the State Air Pollution Control Board, the Department of Mines, Minerals and Energy, the Virginia Waste Management Board and any interstate agency authorized to act in place of a certifying authority of the Commonwealth. DEQ administers the certification process on behalf of the State Water Control Board, the State Air Pollution Control Board and the Virginia Waste Management Board.

Title 23 VAC 10-210-2090 C states that the exemption for certified pollution control equipment and facilities is not applicable unless the property for which the exemption is sought has been certified by the State Water Control Board or State Air Pollution Control Board as used primarily for abating or preventing pollution. The Taxpayer should note that the regulation does not include all the certifying authorities listed in Va. Code § 58.1-3660 B due to a legislative change that occurred since the regulation was last revised.

It is evident from reading the cited statutes and the regulation that the Department administers the pollution control exemption for sales and use tax based on certification by one of the certifying authorities listed in the statute. It is the certifying authority, not the Department, that makes the determination if equipment and facilities qualify for pollution control certification. This is evidenced by a number of public documents issued by the Department that address the exemption for certified pollution control equipment and facilities.

In Public Document ("P. D.") 07-173 (11/14/07), the Tax Commissioner ruled that an equipment purchase could not be removed from a taxpayer's audit because the equipment was not certified as pollution control equipment by a certifying authority. P.D. 96-324 (11/8/96) addresses a leak detection system that was held taxable in a taxpayer's audit. Again, the certified pollution control exemption was denied because the taxpayer did not have the required pollution control certification for the system. It is evident from these documents and numerous other public documents that address the pollution control exemption that the Department relies solely on the proper pollution control certification before granting the exemption. Based on existing law, the Department has no authority to certify equipment and facilities for pollution control and cannot grant the pollution control exemption without such certification.

The Taxpayer must contact DEQ to seek the proper guidance for determining how to obtain pollution control certification of its equipment. With respect to the Taxpayer's request for information on seeking refunds or credits of sales and use taxes paid on equipment that it maintains qualifies for the pollution control exemption, the Department has no authority to issue such credits or refunds without the proper pollution control certification from DEQ. If the Taxpayer does obtain such certification for some or all of its equipment, there is a three-year statute of limitations for filing a sales and use tax refund request.

The Code of Virginia sections, regulation and public documents cited, along withother reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. 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/1-4671315857.S