Ruling 89-92

Exemption - Governmental

This Ruling has been obsoleted in part by AN 2000(8)

You have requested a ruling from the Department of Revenue Services as to whether Connecticut sales and use tax applies to the following:

X Corporation and Y Company entered into an agreement with the Connecticut Department of Transportation regarding the rehabilitation of railroad track in Connecticut. The State will reimburse the above for 70% of the costs incurred under the contract. The land on which the track is located is owned by X Corporation. All improvements to the land on which the rail line is located will be owned by X Corporation.

Section 12-412(1) of the Connecticut General Statutes provides for an exemption for sales of tangible personal property to the State of Connecticut. This exemption has been incorporated in section 12-426-18 of the Regulations of Connecticut State Agencies which provides for an exemption for sales tax on materials physically incorporated in a construction project for an exempt entity. Such an exemption presumes that the exempt materials will be incorporated in property owned by that exempt entity. Where the materials will be incorporated and improve property not owned by an exempt entity, no exemption will pertain to those purchases. (See Kapetan Inc. v. Brown, Superior Court, Hartford Judicial Dist., April 17, 1979.)

Accordingly, it is hereby ruled that purchases of materials for incorporation in improvements to realty owned by X Corporation will be subject to the Connecticut Sales and Use Tax.

TIMOTHY F. BANNON
COMMISSIONER

September 7, 1989