Ruling Request No. 2002-03

Declaratory Rulings

Ruling Request No. 2002-03

Re:  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, Corporation X, a corporation organized under the laws of the State of Delaware, you request, pursuant to the provisions of the Section 42-35-8 of the Rhode Island General Laws, 1956 (as amended)("R.I.G.L."), a declaratory ruling 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 use of which will be in the name of Corporation X, in connection with Corporation X's development and ownership of certain land and buildings located in Rhode Island. The Rhode Island Economic Development Corporation, created under R.I.G.L. Chapter 64 of Title 42 (The "EDC"), has determined that the Project constitutes a "project" of the EDC.

Facts

The facts set forth in the request for ruling dated February 14, 2002, and the documents attached thereto and documents submitted November 6, 2002 are incorporated herein the reference. Such facts and documents from the basis for this ruling.

Corporation X and EDC entered into a Development Agreement on April 23, 2001. Pursuant to the Agreement, EDC will lease from Corporation X certain land presently owned by Corporation X in Rhode Island (the "Project Site"), and in turn will lease back to Corporation X the Project Site. The lease from Corporation X to EDC and sublessee from EDC to Corporation X, was effective on March 1, 2002, with construction of a new building on the Project Site and certain improvements to the existing facilities on the Project Site to be commenced on or about such date.

The Project will consist of the construction of new office building, which will be built so that it is connected with, and will become a part of, Corporation X's existing one level building on the Project Site. There is also a separate one level building on the Project Site. In addition to construction of the new office building, the Project will comprise all renovation, upgrade and replacement, as necessary, of electrical, telephone and data wiring and cabling systems within the existing buildings (the new and existing buildings, collectively, the "Buildings"), and will include all furniture, fixtures and equipment and replacements thereto in the Buildings (the Buildings and all such improvements, collectively, the "Improvements"), which are intended to be used as the New England business operations headquarters, but may be used for any lawful purposes) collectively the "Project").

As described above, the Project Site will be leased from Corporation X to EDC, and the EDC will sublease the Project Site to Corporation X pursuant to a sublease for a ten (10) year term, with an option to extend under certain circumstance for one additional ten (10) year term ("Sublease"). Construction of the Improvements for the Project and payment of all Project related costs will be the responsibility of Corporation X. All Improvements of whatever kind which are constructed or installed by Corporation X will be owned by and remain the sole property of Corporation X during the term of the Sublease. Construction of the Improvements for the Project and payment of all Project related costs will be the responsibility of Corporation X. All Improvements of whatever kind which are constructed or installed by Corporation X will be owned by and remain the sole property of Corporation X 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 useful life of less than one year), including without limitation all construction materials, furniture, fixtures, equipment, partitions, wiring, cabling, electronic hardware and software and any other items of personal property acquired to use with respect to the Project (collectively, "Purchased Materials") will constitute 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. The Purchased Materials will not include goods or inventory held for sale in the ordinary course of business.

By resolution dated April 23, 2001, the Board of Directors of the EDC made the following findings:

1.The Project is a project of the EDC under R.I.G.L. Section 42-64-3(20);and

2.It is in the interest of the EDC and of the Project that legal title to the Improvements and Purchased Materials be held by Corporation X rather than the EDC.

Ruling Requested

The Purchased Materials as set forth and described under the caption "The 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. Section 42-64-3(20). Since the EDC has made the determinations required by Section 42-64-20(20), 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 Corporation X, will be exempt from Rhode Island sales and Use Tax to the same extent as if legal title to such Improvements and 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 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 exemption for the project by the lessee.The resolution shall include findings that

(1) the project of the corporation under R.I.G.L. 42-64-3(20);  and

(2) it is 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 or 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 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 §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 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 April 23, 2001.

Ruling

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

Expenditures defined within Section 5.5 of the Development Agreement made for the Project as defined in Section 2.1 of the Development Agreement (excluding office supplies and common office items having a useful life of less than one year), as may be owned by Corporation X, so long as they do not include goods and inventory held for sale in the ordinary course of business are exempt from the sales/use tax under §42-64-20 subject to the limitations set forth in Section 5.5.

The exemption shall commence on March 1, 2002 and shall apply to the term of the Agreement and extension, if as defined in Section 5.7.

R. Gary Clark

Tax Administrator



November 15, 2002