SN 97(10)

Exemption from Sales and Use Taxes for Tangible Personal Property and Services Purchased by Water Companies

The Exemption for Purchases by Water Companies was Repealed July 1, 2015.

See SN 2015(5) 2015 Legislative Changes to the Sales and Use Taxes, Rental Surcharge, Dry Cleaning Surcharge, and Admissions Tax

PURPOSE: The purpose of this Special Notice is to describe the exemption from sales and use taxes under Conn. Gen. Stat. §12-412(90) for purchases of tangible personal property or enumerated services by water companies for use in maintaining, operating, managing or controlling any pond, lake, reservoir, stream, well or distributing plant or system employed for the purpose of supplying water to 50 or more consumers.

EFFECTIVE DATE: Effective for sales occurring on and after July 1, 1997.

STATUTORY AUTHORITY: Conn. Gen. Stat. §12-412(90).

DEFINITIONS: The following definitions will apply for purposes of the exemption under Conn. Gen. Stat. §12-412(90):

Water company is defined in Conn. Gen. Stat. §16-1(10) as including:

. . . every corporation, company, association, joint stock association, partnership or person, or lessee thereof, owning, leasing, maintaining, operating, managing or controlling any pond, lake, reservoir, stream, well or distributing plant or system employed for the purpose of supplying water to fifty or more consumers. A water company does not include homeowners, condominium associations providing water only to their members, homeowners associations providing water to customers at least eighty per cent of whom are members of such associations, a municipal waterworks system established under Chapter 102, a district, metropolitan district, municipal district or special services district established under Chapter 105, chapter 105a or any other general statute or any public or special act which is authorized to supply water, or any other waterworks system owned, leased, maintained, operated, managed, or controlled by any unit of local government under any general statute or any public or special act.

Consumer is defined by Conn. Gen. Stat. §16-1(11) as:

. . . any private dwelling, boardinghouse, apartment, store, office building, institution, mechanical or manufacturing establishment or other place of business or industry to which water is supplied by a water company.

EXEMPTIONS UNDER PRIOR LAW: Water companies have been allowed to make exempt purchases of materials, tools and fuel used directly in furnishing water to consumers through mains, lines or pipes under Conn. Gen. Stat. §12-412(18). In addition, water companies have been allowed to make exempt purchases of gas, water, steam and electricity used directly in furnishing water to consumers through mains, lines or pipes under Conn. Gen. Stat. §12-412(3)(E). For purposes of these two exemptions, the Connecticut Supreme Court has ruled that the process of "furnishing water to consumers" commences with the transfer of water from clearwells where the potable water is stored; see Connecticut Water Co. v. Barbato, 206 Conn. 337 (1988).

The Manufacturing Recovery Act of 1992 added a partial exemption for purchases of machinery, equipment, materials, tools and fuels used or consumed in an industrial plant in the manufacturing, fabricating or processing of products to be sold or in any process preparatory or related thereto (Conn. Gen. Stat. §12-412i(a); see also SN 93(1.1)). Under this provision, purchases on or after January 1, 1993, by a water company of such items, which are used in maintaining a water source, drawing water from its source, and processing the water, qualify for partial exemption under Conn. Gen. Stat. §12-412i.

Purchases by a water company of items previously exempted in full or in part by Conn. Gen. Stat. §§12-412(3), 12-412(18) or 12-412i will now be fully exempt under Conn. Gen. Stat. §12-412(90).

ITEMS THAT QUALIFY FOR NEW EXEMPTION: Items of tangible personal property, and services enumerated in Conn. Gen. Stat. §12-407(2), are exempt from tax when purchased by a water company, when it will use such items or services in maintaining, operating, managing or controlling any pond, lake, reservoir, stream, well or distributing plant or system which the water company employs in order to supply water to fifty or more consumers. Note that only purchases made by a water company qualify for exemption pursuant to the terms of the statute; therefore, purchases made by a contractor for a water company may not be made exempt under Conn. Gen. Stat. §12-412(90). By way of example and not of limitation, tangible personal property and services purchased for use by a water company in any of the following activities will be exempt:

• maintenance and protection of property at a water source, such as renovating a dam or patrolling water company property, requiring the purchase of such items as concrete, earth, lumber or steel, as well as services to commercial, industrial or income-producing real property, and protection or patrol services;
• treating water in a pond, lake, reservoir, stream, well or distributing plant or system, such as to control algae growth, requiring the purchase of such items as chemicals and filters;
• treating water to make it potable, by filtering out impurities and adding chemicals such as chlorine, lime or fluoride, requiring the construction of treatment plants and the purchase of machinery, equipment, materials, tools and fuel to be used in water treatment;
• transmission and storage of potable water, requiring the purchase of such items as pipes, pumps and clearwells, and construction services and maintenance or repair services to tangible personal property;
• distribution of potable water to consumers, requiring the purchase of such items as pipes, pumps and meters installed at consumers’ premises, "retrofit kits" furnished to consumers to conserve water, and the purchase of construction services and maintenance or repair services to tangible personal property (note that meters or retrofit kits that the water company will sell to consumers may be purchased on resale by the water company but their sale to consumers is taxable);
• gas, electricity or fuel for use at any stage of maintaining, operating, managing or controlling a pond, lake, reservoir, stream, well or distributing plant, such as fuel used to operate a pump or electricity consumed in a water company’s offices;
• water company administration, requiring the purchase of office supplies, furniture and equipment, and personnel services or computer and data processing services for use in such activities as billing or customer service, and janitorial services rendered to a water company’s offices;
• motor vehicles, tools and telecommunications services when used for water company purposes, such as trucks and cellular telephones used by utility crews making repairs, as well as repair services to such motor vehicles or other equipment.

CERTIFICATE OF EXEMPTION: A CERT-130, Sales and Use Exemption for Purchases by Water Companies, must be presented to the seller by a water company purchasing tangible personal property or enumerated services exempt under Conn. Gen. Stat. §12-412(90). Acceptance of CERT-130 in good faith by a seller from a water company will relieve the seller of the burden of proving that the property purchased is subject to the water company exemption. If the purchaser makes any use of the property other than the use stated on the certificate, the property will become subject to tax at the time of such use based upon the full purchase price.

EFFECT OF THIS DOCUMENT: A Special Notice (SN) is a document that, in response to newly enacted or amended Connecticut or federal laws or in response to newly released judicial decisions, announces a new Department position, policy or practice affecting the tax liability of taxpayers.

EFFECT ON OTHER DOCUMENTS: None affected.

FOR FURTHER INFORMATION: If you have questions about Connecticut taxes, please call the Department of Revenue Services during business hours, Monday through Friday:

• 860-297-5962 (Hartford calling area or from out-of-state): or
• 1-800-382-9463 (toll-free from within Connecticut).

Telecommunications Device for the Deaf (TDD/TT) users ONLY call 860-297-4911 during business hours.

SN 97(10)
Sales and Use Tax
Issued: 1/5/98