State of Rhode Island - Division of Taxation
Ruling Request No. 99-01
Re: Request for Ruling Regarding the Application of the exemption Provided by R.I.G.L. §42-64-20(c) for Purchase of Certain Personal Property
Request for Ruling
On behalf of "Company" a corporation organized under the laws of the Commonwealth of Massachusetts, you request a ruling pursuant to the provisions of Section 42-35-8 of the Rhode Island General Laws, 1956 (as amended), as to the exemption from Rhode Island Sales and Use tax of the building and construction materials, personal property, furniture, fixtures and equipment (including all telecommunications equipment, computer hardware and software systems) and replacements, additions and enhancements thereof, the legal title to and use of which will be in the name of Company, in connection with Company's lease with respect to which the Rhode Island Economic Development Corporation, created under R.I.G.L. Chapter 64 of Title 42 (the "EDC"), is the landlord and Company is the tenant.
Company and EDC are proposing to enter into a Development Agreement pursuant to which the EDC will take an assignment of a lease (the "Lease") between X Corp., owner of the beneficial rights to use the Building, in turn sublease the Building to Company as subtenant. X Corp. is lessee of the land under the Building pursuant to a long term ground lease from the landowner. In connection with its financing of the Building, on February 1, 1990, X Corp. conveyed the Building to the Rhode Island Industrial Facilities Corporation, which in turn leased the Building back to X Corp.. The present subtenant's lease of the Building from X Corp. expires on January 15, 2000. It is the intention of the parties that the Lease from X Corp. to Company, and the related assignment to EDC and Sublease from EDC to Company, will be effective on or about June 1, 1999, with improvements to the Building to be made by Company commencing on or about such date, and Company occupancy of the building to commence on or about January 16, 2000.
The Company project will consist of the renovation and replacement of much of the electrical, telephone and data wiring and cabling systems within the Building, and will include all furniture, fixtures and equipment and replacements thereto in the Building (collectively, the "Improvements"), which are intended to be used as a service center by Company, but may be used for any lawful office, mail room, lockbox, check processing and cash management purposes (collectively, the "Project"). As described above, the Building will be leased from X Corp. to Company, and Company's rights will be assigned to the EDC, and the EDC will sublease the Building to Company pursuant to a Sublease for a ten (10) year term ("Sublease"). Construction of the improvements for the Project and payment of all Project related costs will be the responsibility of Company and/or X Corp.. All Improvements of whatever kind which are constructed or installed by Company in the Building will be owned by and remain the sole property of Company during the term of the Sublease. 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, equipment, partitions, wiring, cabling, electronic hardware and software and any other items of personal property acquired for use with respect to the Project (collectively, "Purchased Materials") will constitute part of the Project. Further, throughout the term of the Sublease and operation of the Project, it is expected that many items of personalty (excluding office supplies or other common office items which have a useful life of less than one year), including for example, telecommunications equipment, computers and related hardware and software, will be replaced or enhanced ("Replacement Items"). The Replacement Items also constitute Purchased Materials. company or its permitted subtenants will use the Project as permitted under the Lease and will not hold goods or accumulate inventory for sale in the ordinary course of business.
By resolution, the Board of Directors of the EDC has made or will make the following findings:
- The project is a project of the EDC under R.I.G.L. § 42-64-3(p); and
- It is in the interest of the EDC and of the Project that legal title to the Improvements and Purchased Materials be held by Company rather than the EDC.1
The Purchased Materials as set forth and described under the caption "Facts" above, 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 R.I.G.L. § 42-64-3(p). Assuming the EDC makes the determinations required by § 42-64-3(c), the Improvements and the Purchased Materials that will be acquired, installed and used at the Project, the legal title to which will be in the name of Company, will be exempt from Rhode Island Sales and Use Tax to the same extent as if legal title such Improvements and Purchased Materials were in the name of EDC.
The pertinent provisions of the Rhode Island General Laws read as follows:
42-64-3(p). "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 such project, but such legal title may be held in the name of a lessee (including subleases) from the corporation. Such 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 of legal title of such property were in the name of the corporation, provided that the board of directors of the corporation adopts a resolution confirming use of such tax exemption for such project by such lessee. Such resolution shall include findings that (1) the project is a project of the corporation under § 42-64-3(p) 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(p) 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.
Since the Purchased Materials used in the Project as that term is defined in R.I.G.L. § 42-64-3(p), supra, would be exempt if title vested in EDC, those same purchases would likewise be exempt during the life of the Project if EDC adopts a resolution making the aforementioned findings thereby "assigning" its exemption to Company.
Assuming that EDC adopts the resolution required by § 42-64-20(c), the Purchased Materials as set forth and described under the caption "Facts," 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(p) of the R.I.G.L. The Improvements and the Purchased Materials that will be acquired, installed and used at the Project, the legal title to which will be in the name of Company will be exempt from Rhode Island sales and use tax during the life of the Project to the same extent as if legal title of such Improvements and Purchased Materials were in the name of the EDC.
This ruling may be relied upon by Company 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 situations described above change.
R. Gary Clark
May 10, 1999