State of Rhode Island - Division of Taxation
Ruling Request No. 2003-04Request 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"),you request a Declaratory Ruling regarding an exemption from sales and use tax of certain material to be purchased for a project in 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 DR94-01 of the Rhode Island Division of Taxation.
The facts set forth in your request for ruling dated June 11, 2003 and the documents submitted are incorporated herein by reference. Such facts and documents form the basis for this ruling.
Company proposes to establish and operate a facility located in Rhode Island ("Project Site"). The Project Site has been leased by a Rhode Island limited liability company )(Lessor") to Company pursuant to a lease dated March 12,2001 (the "Master Lease"). Company then assigned its leasehold interest in the Master Lease to the Rhode Island Economic Development Corporation, a public corporation and governmental agency of the State of Rhode Island ("EDC") pursuant to an Assignment of Lease, and the EDC has subleased the Project Site back to Company to undertake the Project, pursuant to a Sublease.
EDC, Company and Lessor have executed a Tri-Party Agreement that sets forth the respective duties and responsibilities of each of the parties thereto under the Master Lease, as assigned to the EDC, and the Sublease.
On March 21, 2001, the Board of Directors of the Rhode Island Economic Development Corporation passed a Resolution that, among other provisions, designated the project, as 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 Company or its sub lessees. 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., for a term not exceed five (5) years. The Project consists of (i) the land and buildings located on the Project Site and any other supporting consists or related facilities of Company in the State, (ii) certain improvements to be made to the Project Site and any other supporting or related facilities of Company in the State, to make them suitable for use by Company in connection with its operations, and (iii) any and all personal property, new of used, including, but not limited to, all furniture, fixtures, equipment, furnishings, computer hardware and software and information systems, located at at the Project Site and any other supporting or related facilities of Company in the State.
Legal title to the Project and all purchased materials will be held by the Company. Pursuant to Section 42-64-10(a) (2), the EDC has performed an Economic Impact Analysis of the Project. Also on March 26, 2001, Company and EDC executed a Development Agreement. Under the terms of the Development Agreement Company is financially responsible for the construction and completion of the Project, and payment of all Project related costs.
The purchased materials, as may be owned by Company so long as they do not include goods or inventory held for sales 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, 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 were in the name of the EDC.
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 king 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 sub lessees) from the corporation. The 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 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, resident 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 §42-64-3(20), EDC was granted an exemption from all state taxes except for estate, inheritance and gift taxes. R.I.G.L.§42-64-3(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 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. The resolution was adopted by the board of directors on March 21, 2001 with respect to Company.
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 Company would likewise be exempt subject to the limitations set forth in § 2.3 of the Development Agreement.
Based upon the facts presented and representations in the request for ruling and accompanying documents, the following ruling is made.
All property used in the development,construction and operation of the Project including, without limitation, all building and construction materials, personal property, furniture, fixture and equipment (including all computer hardware and software systems) and all replacements thereof, acquired, leased or used in connection with the development, construction and operation of the Project so long as they do not include goods or inventory held for sale in the ordinary course of business (or office supplies ad common office items which have a useful life of less than one year) constitute part of the EDC Project and as such, are exempt pursuant to §42-64-3(20) to the same extent as if legal title to such property was in the name of the EDC.
This exemption is subject to the Terms and Tax Benefit Limitation set forth in § 2.3 of the Development Agreement.
This ruling may be relied upon by Company and shall remain in effect for the lessor of (i) five (5) years from the date of the effective date of the Development Agreement (March 21,2001), or (ii) the date of termination of the lease, whether terminated by expiration, express termination, merger of interest or otherwise, or (iii) the date this exemption is no longer legally permitted.
R. GARY CLARK
July 14, 2003