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TECHNICAL ASSISTANCE ADVISORY 92-003Subject: Consumers Sales and Service Tax - Services Furnished By Corporations Subject To The Control Of The Public Service Commission Are Not Subject To The Consumers Sales And Service Tax. Sales Of Tangible Personal Property By Corporations Subject To The Control Of The Public Service Commission Are Subject To The Consumers Sales And Service Tax Unless Otherwise Exempt Pursuant To A Statutory Provision. Sales Of Property For The Purpose Of Resale Are Exempt From The Consumers Sales And Service Tax. Purchases Of Property Directly Used In A Transportation Activity By A Transportation Business Are Exempt From The Consumers Sales And Service Tax. FACTS: The Taxpayer is in the business of leasing, as lessor, railroad cars. Cars leased by the Taxpayer are routinely inspected by the Federal Railroad Administration and, under Section 24­2­1a of the West Virginia Code, the West Virginia Public Service Commission. At the request of certain economic development organizations, the Taxpayer initiated a pilot project for operation of passenger train service over a certain section of track to carry tourists. The railroad over which this service runs is operated by the State of West Virginia. The Taxpayer established a corporate division for the purpose of providing this passenger service. After completion of the pilot project, the Taxpayer secured operating rights over the railroad whereby the Taxpayer would operate passenger service on the weekends and certain holidays when freight service is not normally operating. Locomotives used by the Taxpayer's passenger service are leased by the railroad to the Taxpayer. The Taxpayer provides and maintains the passenger cars, provides all train and locomotive crew personnel and sells tickets which cover the costs of the transportation and, in the case of some classes of tickets, on­board food service. A percentage of gross ticket revenues is remitted to the railroad as consideration for trackage rights. SERVICES FURNISHED BY CORPORATIONS SUBJECT TO THE CONTROL OF THE PUBLIC SERVICE COMMISSION ARE EXCEPTED FROM THE CONSUMERS SALES AND SERVICE TAX. The Taxpayer refers to Section 24-2-1a of the West Virginia Code which provides that: The [public service] commission or its duly authorized representatives are hereby authorized and empowered to enter and inspect any property, premise or place, owned or operated by a railroad, whether fixed facilities or rolling stock, including, but not limited to, locomotives, cars and cabooses, stationary or in motion, at any reasonable time for the purpose of ascertaining the state of compliance with this article and rules and regulations in force pursuant thereto. No person shall refuse entry or access to the commission or any authorized representative of the commission who requests entry for purposes of inspection, and who presents appropriate credentials; nor shall any person obstruct, hamper or interfere with any such inspection. The Taxpayer states that Section 24-2-4d of the West Virginia Code provides that the West Virginia Public Service Commission retains authority over intrastate rail rates and complaints. The Taxpayer points out that Section 11-15-8 of the West Virginia Code provides an exception to application of the West Virginia Consumers Sales and Service Tax. That Section reads as follows: The provisions of this article [the consumers sales and service tax article] shall apply not only to selling tangible personal property, but also to the furnishing of all services, except professional and personal services, and except those services furnished by corporations subject to the control of the public service commission. The Taxpayer refers to 110 C.S.R. 15, §

2.83 (1992), which defines the terms "service" or "selected service" for purposes of the West Virginia Consumers Sales and Service Tax. That section reads as follows: "Service" or "selected service" includes all activities engaged in for other persons for a consideration, which involve the rendering of a service as distinguished from the sale of tangible personal property, but does not include contracting services, personal services, professional services, the services rendered by an employee to his employer, services furnished by corporations subject to the control of the West Virginia Public Service Commission or any service rendered for resale. (Emphasis added). The Taxpayer refers to 110 C.S.R. 15, §

2.87 (1992), which defines the term "subject to the control of the Public Service Commission" for purposes of the West Virginia Consumers Sales and Service Tax. That section reads as follows: "Subject to the control of the Public Service Commission" means a person which is subjected to regulation by such Commission, regardless of whether said Commission actually regulates such person. The Taxpayer argues that, because under Section 24-2-4d of the West Virginia Code and 24-2-1a of the West Virginia Code, quoted above, the Taxpayer is subject to the control of the Public Service Commission, then Section 11-15-8 of the West Virginia Code operates to except services furnished by the Taxpayer from the consumers sales and service tax. The Department of Tax and Revenue hereby finds the Taxpayer to be subject to the control of the Public Service Commission for its passenger train operations as defined under the Consumers Sales and Service Tax Regulations. Therefore, charges to customers for the providing of passenger transportation service are not subject to the West Virginia Consumers Sales and Service Tax under Section 11­15-8 of the West Virginia Code. However, because Section 11­15­8 of the West Virginia Code addresses only services in this context, the sale of meals and other tangible personal property to customers by the Taxpayer is subject to the consumers sales and service tax. Therefore, the Taxpayer will be required to specifically separate and set forth the cost of meals for those tickets which include the providing of on­board meals. The Taxpayer will be required to collect the West Virginia Consumer Sales and Service Tax on purchases of these meals by customers. Failure to separately identify the cost of meals or the statement of an artificially low cost of meals as a component of total ticket cost, will result in the application of the consumers sales and service tax against the entire ticket price. CONSUMERS SALES AND SERVICE TAX EXEMPTION FOR PURCHASES OF PROPERTY DIRECTLY USED IN A TRANSPORTATION ACTIVITY. The Taxpayer points out that Section 11-15-9(g) of the West Virginia Code exempts from the consumers sales and service tax "[s]ales of property or services to persons engaged in this State in the business of. . .transportation" for those services, machinery, supplies and materials directly used or consumed in the activity of transportation. The Taxpayer also discusses relevant Consumers Sales and Service Tax Regulations. 110 C.S.R. 15 §

8.3 (1992) provides that purchases which qualify under Section 9.4.1 of the Consumers Sales and Service Tax Regulations shall be exempt from the tax. 110 C.S.R. 15 §

9.4.1 (1992) discusses sales to persons engaged in this State in the business of (among others) transportation, and limits the exemption to services, machinery, supplies and materials directly used or consumed in the activity of (among others) transportation. The Taxpayer points out that 110 C.S.R. 15 §

2.101 (1992) defines the term "transportation" as meaning "the act or process of conveying for consideration as a commercial enterprise, passengers

. . . from one place or geographical location to another place or geographical location . . . ." The Taxpayer points out that 110 C.S.R. 15 §

123.4.1 (1992) essentially repeats this definition for the term "transportation" and further provides that the regulation applies to "taxpayers engaged in transportation that are subject to the control of the Public Service Commission." The Taxpayer argues that under Section 11-15-9(g) of the West Virginia Code, the Taxpayer's purchases of services, machinery, supplies and materials directly used or consumed in its transportation activities are exempt from the West Virginia Consumers Sales and Service Tax, and the Taxpayer further argues that it is entitled to the issuance of a direct pay permit number pursuant to Section 11-15-9d of the West Virginia Code. The Department of Tax and Revenue hereby finds that the Taxpayer's purchases of services, machinery, supplies and materials directly used or consumed in its transportation activities are exempt from the West Virginia Consumers Sales and Service Tax pursuant to the provisions of Section 11-15-9(g) of the West Virginia Code. Under Section 11-15-9d of the West Virginia Code, the Taxpayer may apply for issuance of a direct pay permit number in accordance with Department of Tax and Revenue Application Procedures. It is further determined that the Taxpayer should have the sale for resale exemption available for its purchases of food and other tangible personal property to be resold to its customers under Section 11-15-9(j) of the West Virginia Code. The conclusions reached in this advisory are based on the facts submitted and application of current law and regulations. You are advised that the conclusions reached in this advisory may no longer apply should (1)

there be a change of material fact, (2)

the material facts be significantly different from those provided for purposes of this advisory, or (3)

there be a material change in the applicable law or regulations. In the event there is a material change, your client may apply for clarification of this advisory. James H. Paige III, Secretary Department of Tax and Revenue Issued: June 24, 1992