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Declaratory Rulings

State of Rhode Island - Division of Taxation

Declaratory Rulings

Ruling Request No. 2003-02

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

On behalf of your client company (Developer), you request a Declaratory Ruling regarding an exemption from sales and use tax of certain material to be purchased for a project in Providence, Rhode Island. This request is made pursuant to the provisions of Section 42-35-8, R.I.G.L., 1956 (as amended) as well as Regulation DR  94-01 of the Rhode Island Division of Taxation.

Facts

The facts set forth in your request for ruling dated April 2, 2003 and the documents attached thereto are incorporated herein by reference. Such facts and documents form the basis for this ruling.

Developer is an affiliated entity of Company X (X), a limited liability company. X and its principals have extensive experience in the rehabilitation, construction, development and operation of commercial real estate projects. X has formed Developer for the sole purpose of redeveloping and managing a structure located in Providence, Rhode Island.

On October 16, 2002, the Developer, EDC, and the State of Rhode Island and Providence Plantations executed a Development Agreement. Section 2.4 of the Development Agreement stipulates that upon the satisfaction of certain conditions, the Developer and the EDC shall enter into a Ground Lease, with a term of 30 years, which shall provide the Developer with a marketable leasehold interest in the Project Site, as each of those terms is defined in the Development Agreement, upon which to construct the Project. However, upon completion of the Project, Developer or its designee has a right to acquire title to the Project Site for $1.00. Section 2.2 of the Development Agreement makes the Developer financially responsible for the costs associated with the construction and development of the Project. Section 3.2(i) requires the Developer to enter into a Tax Stabilization Agreement with the City of Providence on or before May 1, 2003.

On October 28, 2002, the Board of Directors of the Rhode Island Economic Development Corporation passed a Resolution that, among other provisions, designated the redevelopment project, as proposed by the Developer a Project of the EDC pursuant to Section 42-64-3(20), R.I.G.L. and determined that it is in the best interest of the EDC and the Project that legal title to the Project and all purchased materials shall be in the name of the Developer or its lessees or sublessees. 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., during the period of construction of the Project. Legal title to the Project and all purchased materials will be held by the Developer. Pursuant to Section 426410(a)(2), the EDC has performed an Economic Impact Analysis of the Project.

Ruling Requested

The purchased materials, as may be owned by the Developer, 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., and, as such, assuming the closing contemplated under the Development Agreement, are exempt under Section 42-64-3(20), R.I.G.L., from Rhode Island sales and use tax to the same extent as if legal title of such purchased materials were in the name of the EDC.

Discussion

Section 42-64-20(b), R.I.G.L. provides, with respect to the EDC, in pertinent part as follows:

The corporation shall not be required to pay state taxes of any kind, and the corporation, its projects, property, and moneys 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) from these shall at all times be free from taxation of every kind by the state and by the municipalities and all political subdivision of the state . . .

Section 42-64-20(c), R.I.G.L., provides as follows:

For purposes of the exemption from taxes and assessments upon or in respect of any project under subsection (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 the legal title may be held in the name of a lessee (including sublessees) from the corporation. This property, which shall not include any goods or inventory used in such project after completion of construction, shall be exempt from taxation to the same extent as if legal title of such property were in the name of the corporation; provided that the board of directors of the corporation adopts a resolution conforming 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 R.I.G.L. 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 cost to the corporation or designation of the project as a Project of Critical Economic Concern pursuant to Chapter 117 of this Title.

The term project is defined in 42-64-3(20) as:

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 disposal facility, civil facility, residential facility, water supply facility, or any other facility, or any combination of two (2) or more of the foregoing, or any other activity undertaken by the corporation.

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 subsection 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 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 on October 28, 2002.

Since the purchased materials used in the construction and development of the Project as that term is defined in R.I.G.L. 42-64-3(20), supra, would be exempt if title vested in EDC, those same purchases by Developer or its affiliates would likewise be exempt under the terms of the Development Agreement.

Ruling

Based upon the facts presented and representations made in the request for ruling and accompanying documents, the following ruling is made.

Assuming the closing contemplated under the Development Agreement occurs, all materials used in the construction and development 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 replacement goods or parts thereto acquired during the construction of the Project for use with respect to the Project as may be owned by Developer 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 42-64-3(20) of the R.I.G.L., and as such, are exempt under 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.

This ruling may be relied upon by Developer and shall be valid until expressly revoked or until the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying facts herein change.

R. GARY CLARK
TAX ADMINISTRATOR
APRIL 16, 2003