Once Virginia's DEQ certifies equipment as pollution control equipment, can the Department of Taxation still deny the sales tax exemption, or does the length of use matter?

Plain-English summary

A contractor building a bridge and tunnel system in Virginia had obtained certification from the Virginia Department of Environmental Quality (DEQ) that certain equipment it planned to use qualified as pollution control equipment. Before proceeding, it asked the Department of Taxation two questions: can the Department refuse to apply the sales tax exemption to property DEQ has already certified, and does how long the equipment is used affect whether the exemption applies?

The Department's answer to both was straightforward. Virginia's pollution control equipment exemption exempts property "certified" as pollution control equipment and facilities by the appropriate state certifying authority, here DEQ, which is the agency legally responsible for evaluating and certifying this type of equipment. Once DEQ issues that certification, the Department of Taxation's role is to honor it, not to independently second-guess or re-evaluate whether the equipment actually serves a pollution-control purpose. The Department also confirmed that duration of use isn't a factor at all -- nothing in the statute or regulation ties the exemption's availability to how long certified equipment remains in service.

The Department did flag one limit: the cover letter that accompanies the Department's own ST-11A exemption certificate lists restrictions and guidance about what kinds of property might not be included in a typical DEQ certification, but that cover letter is meant to help taxpayers understand the scope of certification, not to override or narrow an actual DEQ certification that has already been issued. If DEQ certifies specific property, that certification stands, regardless of contrary language in the Department's own guidance materials. Property that was never certified by DEQ in the first place, however, gets no benefit from the exemption at all. A closely related ruling issued five days earlier, P.D. 23-1, reached the same conclusion for a different taxpayer questioning whether rented equipment or equipment that doesn't stay permanently at one project could still qualify.

What this means for you

Contractors and businesses using DEQ-certified pollution control equipment

Once your equipment has a valid DEQ certification under Va. Code § 58.1-3660, that certification is what controls your sales tax exemption -- the Department of Taxation can't refuse the exemption for certified property, and you don't need to worry about how long you use the equipment affecting your exemption.

Anyone confused by restrictive language on a Department exemption-certificate cover letter

Read cover-letter restrictions as general guidance about what DEQ certifications typically do and don't cover, not as an independent limitation that can cut back a certification DEQ has actually issued for your specific property.

Common questions

Q: Can the Virginia Department of Taxation refuse to honor a DEQ pollution control equipment certification?
A: No -- once DEQ, the state agency authorized to evaluate and certify this equipment, issues a certification, the Department of Taxation must apply the sales tax exemption to that certified property.

Q: Does it matter how long certified pollution control equipment is used?
A: No -- the duration of use does not affect whether the exemption applies to DEQ-certified equipment.

Q: Do restrictions on the Department's exemption-certificate cover letter limit my exemption?
A: No -- the cover letter is meant as guidance about what property a DEQ certification typically covers; it doesn't override an actual DEQ certification already issued for specific property.

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

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-6

Original ruling text

January 11, 2023

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the “Taxpayer”) requesting a ruling on the application of the retail sales and use tax exemption provided by Virginia Code § 58.1-609.3 (9).

FACTS

The Taxpayer has been awarded a contract for the design and construction of a new bridge and tunnel system in Virginia. The Taxpayer states that it has received certification from the Virginia Department of Environmental Quality (DEQ) for certain equipment or components to be used for pollution control. The Taxpayer asks the following questions:

1. Once the appropriate state agency certifies that specific items of tangible personal property are pollution control equipment, can the Department refuse to apply the exemption to that property?

2. Once items are certified by the appropriate state agency as pollution control equipment, does the duration that the items are used affect whether the exemption applies?

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 qualify for exemption from the tax. Further, the limitations indicated on the cover letter of the exemption certificate provided by the Department do not prevent the Taxpayer from enjoying the exemption 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 section and regulation cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3993.G

Related Documents

12-96

18-112