RI.gov R.I. Government Agencies | Privacy Policy |

Declaratory Rulings

State of Rhode Island - Division of Taxation

Declaratory Rulings

Ruling Request No. 2001-01

 

Re: RULING REQUEST NO. 2001-01

Request for Ruling Regarding the Application of the Exemption provided by 42-64-20(c) for Purchases of Certain Personal Property

 

REQUEST FOR RULING

On behalf of your client, "Company A", you request a ruling pursuant to RIGL 42-35-8, as to the exemption from the sales and use tax of construction materials, personal property, furniture, machinery, equipment, cabling, electronic hardware and software and any replacement goods or parts thereto acquired in connection with the retrofitting and expansion of an existing facility located in Rhode Island as part of a project of the Rhode Island Economic Development Corporation ("EDC").

FACTS

The facts set forth in your request for ruling dated July 2, 2001, and the documents attached thereto are incorporated herein by reference. The following are the salient facts upon which this ruling is based.

Company A is a wholly owned subsidiary of X Corporation. Company A operates a certain manufacturing facility located in Rhode Island. Company A purchased the Facility in late September of 1999 for the purpose of retrofitting and expanding the existing plant. Construction and expansion plans were implemented, and costs incurred, immediately upon the purchase of the Facility by Company A in September of 1999.

X Corporation currently owns approximately forty-one percent (41%) of Y Corporation stock. X Corporation and Y Corporation have agreed that X Corporation will sell Company A to Y Corporation. Company A, X Corporation and Y Corporation are implementing a plan to significantly expand manufacturing capacity for its products both within the State of Rhode Island (the "State") and outside the State.

On November 20, 2000 the Board of Directors of the Rhode Island Economic Development Corporation unanimously passed a Resolution that, among other provisions, designated the Facility and all future improvements a "Project" of the EDC pursuant to Section 42-64-3(20), R.I.G.L. In conjunction with this designation, the EDC provided an exemption from taxation and assessments for the Project pursuant to Section 42-64-20, R.I.G.L., (except that there shall be payments made to local taxing authorities in lieu thereof) for a period not to exceed ten (10) years. On March 26, 2001, the Board of Directors of the EDC unanimously passed a supplemental Resolution stating that the commencing date of the Project shall be September 27, 1999. Thus, the ten year period will terminate no later than September 26, 2009. Finally, the EDC has resolved that it was in the best interest of the EDC and the Project that legal title to all real and personal property relating to the Project be held by Company A or its Affiliates, as either is defined in Article I of the Development Agreement. Pursuant to Section 42-64-10(a)(2), R.I.G.L., the EDC has performed an Economic Impact Analysis of the Project.

Company A and EDC have executed a Development Agreement pursuant to which the EDC, as tenant, has leased a portion of Company property at the Facility ("Ground Lease"). Company A, as a subtenant, has leased back this property ("Subground Lease") from the EDC, as subtenant. Company A, its affiliates or, subject to EDC approvals, Y Corporation and its affiliates as an assignee ("Approved Assignee"), are, under the Development Agreement, financially responsible for the construction and development of the Project, including all manufacturing, administrative, and other support facilities (the "Improvements"). Such improvements may or may not be on the Ground Lease property but will be an integral part of the Project. All materials used in the construction, development and operation of the Project (other than office supplies or common office items which have a useful life of less than one year), including, without limitation, all furniture, fixtures, machinery, equipment, partitions, cabling, electronic hardware and software, any other items of personal property, and any replacements goods or parts thereto acquired for use with respect to the Project (collectively purchased materials") will constitute part of the Project.

RULING REQUEST

1. The Purchased Materials, as may be owned by Company A or its Affiliates, so long as they do not include goods or inventory held for sale in the ordinary course of business, validly constitute part of an EDC project as set forth in Section 42-64-3(20), R.I.G.L., are exempt under Section 42-64-20, R.I.G.L., from Rhode Island sales and use tax to the same extent as if legal title of such Purchased Materials was in the name of the EDC; and

2. All the rights and obligations associated with project status, as outlined in the paragraph immediately above, shall continue to inure to Company A as well as to Y Corporation and its Affiliates, if and when Company A becomes a wholly owned subsidiary of Y Corporation or of one of its Affiliates; moreover, pursuant to Section 7.2 of the Development Agreement, all rights and responsibilities of the Development Agreement, including the benefits outlined in the paragraph immediately above, shall continue to inure to Company A as well as to Y Corporation and its Affiliates, should X Corporation assign such rights and responsibilities to Y Corporation or its Affiliates.

DISCUSSION

The pertinent provisions of the Rhode Island General Laws read as follows:

42-64-3(20). "Project" or "port project" means the acquisition, ownership, operation, construction, reconstruction, rehabilitation, improvement, development, sale, lease, or other disposition of, or the provision of financing for, any real or personal property (by whomever owned) or any interests therein, including without limiting the generality of the foregoing, any port facility, recreational facility, industrial facility, airport facility, pollution control facility, utility facility, solid waste facility, or any other facility, or any combination of two (2) or more of the foregoing, or any other activity undertaken by the corporation.

42-64-20(b). The corporation shall not be required to pay state taxes of any kind, and the corporation, its projects, property, and monies and, except for estate, inheritance, and gift taxes, any bonds or notes issued under the provisions of this chapter and the income (including gain from sale or exchange) therefrom shall at all times be free from taxation of every kind by the state and by the municipalities and all political subdivisions of the state.

42-64-20(c). For purposes of the exemption from taxes and assessments upon or in respect of any project under subsections (a) or (b) of this section, the corporation shall not be required to hold legal title to any real or personal property, including any fixtures, furnishings or equipment which are acquired and used in the construction and development of the project, but such legal title may be held in the name of a lessee (including subleases) from the corporation. This property, which shall not include any goods or inventory used in the project after completion of construction, shall be exempt from taxation to the same extent as of legal title of the property were in the name of the corporation, provided that the board of directors of the corporation adopts a resolution confirming use of the tax exemption for the project by the lessee. The resolution shall include findings that (1) the project is a project of the corporation under 42-64-3(20) and (2) it is in the interest of the corporation and of the project that legal title be held by the lessee from the corporation. In adopting any such resolution, the board of directors may consider any factors it deems relevant to the interests of the corporation or the project including, for example, but without limitation, reduction in potential liability or costs to the corporation or designation of the project as a "Project of Critical Economic Concern" pursuant to Chapter 117 of this title.

Chapter 64 of Title 42 entitled "Economic Development Corporation" was enacted in 1974. Under subsection (b) of 42-64-20, EDC was granted an exemption from all state taxes except for estate, inheritance and gift taxes. R.I.G.L. 42-64-20 was amended in 1995 by adding subsection (c). That new section allows EDC to "assign" its tax exemption granted under subsection (b) to its lessee (or sublease). In order to make such an assignment the board of directors must, by resolution, find that (1) the project is a project of the EDC under Section 42-64-3(20) and (2) that it is in the interest of the EDC and the project that legal title be held by the lessee (or sublease) of the EDC. This resolution was adopted by the board of directors granting the exemption from taxation be for a term not to exceed ten (10) years commencing September 27, 1999.

Since the Purchased Materials used in the Project as that term is defined in RIGL 42-64-3(p), supra, would be exempt if title vested in EDC, those same purchases by Company A or its affiliates would likewise be exempt during the above-stated period.

 

RULING

1. The Purchased Materials, (excluding office supplies or common office items which have a useful life of less than one year) as may be owned by Company A or its affiliates, so long as they do not include goods or inventory held for sale in the ordinary course of business constitute part of an EDC Project as set forth in Section 42-64-3(20) of the R.I.G.L., and as such, are exempt under Section 42-64-20, R.I.G.L., from Rhode Island sales and use tax to the same extent as if legal title of such Purchased Materials was in the name of the EDC; and

2. All the rights and obligations associated with project status, as outlined in the paragraph immediately above, shall continue to inure to Company A as well as to Y Corporation and its Affiliates, if and when Company A becomes a wholly owned subsidiary of Y Corporation or of one of its Affiliates; moreover, pursuant to Section 7.2 of the Development Agreement, all rights and responsibilities of the Development Agreement, including the benefits outlined in the paragraph immediately above, shall continue to inure to Company A as well as to Y Corporation and its Affiliates, should X Corporation assign such rights and responsibilities to Y Corporation or its Affiliates.

This ruling may be relied upon by Company A and its Affiliates and shall remain in effect for the lesser of (i) ten (10) years from the effective date of September 27, 1999; (ii) the date of termination of the Ground Leases, whether terminated by expiration, express termination or otherwise; or (iii) the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying facts described herein change.

 

 

R. GARY CLARK

TAX ADMINISTRATOR

JULY 11, 2001