Virginia Administrative Code
Title 23 - TAXATION
Agency 10 - DEPARTMENT OF TAXATION
Chapter 210 - RETAIL SALES AND USE TAX
Section 23VAC10-210-4050 - Ships or vessels used or to be used exclusively or principally in interstate or foreign commerce

A. Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise:

"Foreign commerce" means a business venture between persons in the United States and those in a foreign country.

"High seas" means that portion of the ocean which is beyond the territorial jurisdiction of the United States. It does not include the Chesapeake Bay, intercoastal waterways, or inland rivers or waterways.

"Intercoastal trade" means the exchange of goods or commodities between ports.

"Interstate commerce" means a business venture between the people of two states.

"Principally" means more than 50%.

"Used directly" means those items that are both indispensable to the building, conversion, or repair process and which are used as an immediate part of such process. See 23VAC10-210-920 for further explanation of this term.

B. Ships and vessels used in interstate or foreign commerce; dredges and attendant vessels. Ships or vessels used or to be used exclusively or principally in interstate or foreign commerce or the charge for repairs and alterations of them are exempt from the tax. Ships or vessels which are not principally used in interstate or foreign commerce are subject to the tax. This includes charter party boats, fishing vessels, and other vessels which leave a point in one state and return to the same point without docking in another state.

Dredges and attendant vessels, such as barges upon which silt from the dredging process is loaded, are entitled to the exemption set forth in this subsection and subsection C provided they are principally used in the dredging of interstate waterways. Vessels not physically involved in the dredging of an interstate waterway, such as crew boats, survey boats, and barges used to move equipment, materials, and employees from the dredging site, are subject to the tax.

C. Shipbuilding, conversion, and repair. Tangible personal property used directly in the building, conversion, or repair of ships or vessels (i) used or to be used exclusively or principally in interstate or foreign commerce, or (ii) plying the high seas, either in intercoastal trade between ports in the Commonwealth and ports in other states of the United States, its territories or possessions, or in foreign commerce between ports in the Commonwealth and ports in foreign countries, is exempt from the tax. Persons engaged in the building, conversion, or repair of such ships or vessels may be eligible for the manufacturing exemption set forth in 23VAC10-210-920. Items of tangible personal property which are used directly in the building, conversion, or repair process, such as machinery, tools, fuel, power, energy, and supplies, may be purchased exempt from the tax. Items of tangible personal property used indirectly in shipbuilding, conversion, or repair activities are subject to the tax. For example, tangible personal property purchased for use in providing shipboard or support services, including, but not limited to crew berthing, and power, water, steam, and refrigeration services for the crew's facilities, in connection with the repair of vessels, is deemed to be used indirectly in the process and subject to the tax.

See 23VAC10-210-920 for further description of the manufacturing/processing exemption.

For repairs to ships or vessels not meeting the interstate or foreign commerce or plying the high seas requirements, see 23VAC10-210-3050.

D. Fuel and supplies; vessels and ships plying the high seas. Fuel used for propulsion of ships or vessels, including dredges, is exempt from the tax pursuant to subdivision 6 of § 58.1-609.1 of the Code of Virginia. However, except as provided in this subsection, fuel used to operate equipment which is not an integral part of a ship, boat, or vessel, generally is taxable.

Fuel for the propulsion or operation of equipment and supplies for use aboard ships or vessels plying the high seas, either (i) in intercoastal trade between ports in this state and ports in other states of the United States or its territories or possessions, or (ii) in foreign commerce between Virginia ports in this state and ports in foreign countries are exempt from the tax when delivered directly to such ships or vessels.

Fuel used to operate machinery and equipment which is not an integral part of and supplies purchased for use on ships or vessels which do not ply the high seas in intercoastal trade or foreign commerce, such as dredges or barges, is taxable. When fuel is used in both taxable and exempt activities, the tax due is prorated between the percentage of use in taxable and exempt activities. For example, fuel used in engines to both propel a dredge and to operate equipment on such is taxable based upon the percentage of usage in operating the equipment.