§ 32.34. Public utilities.
(a) Equipment, machinery, parts and foundations therefor, and supplies used directly in rendering public utility service. The purchase or use by a public utility of tangible personal property or services performed thereon to be predominantly used directly by it in producing, delivering or rendering of a public utility service or constructing, reconstructing, remodeling, repairing or maintaining facilities directly used in the service is exempt from tax, whether or not the facilities constitute real estate. However, for purposes of this exemption, real estate does not include buildings, roads or similar facilities. Effective March 4, 1971, foundations for exempt machinery or equipment became subject to tax and remained taxable until February 9, 1981. Effective February 7, 1981, foundations used to support equipment, machinery and parts used directly in rendering a public utility service are exempt from tax. The term foundations includes sand, gravel, crushed rock, concrete or similar material used as bedding or surrounding pipe used directly in rendering a public utility sanitary sewer or water service. Purchases of any vehicles required to be registered under 75 Pa.C.S. § § 1019909 (relating to Vehicle Code), except those vehicles used directly by a public utility engaged in business as a common carrier as well as supplies and repair parts for the vehicles, is subject to tax.
(1) Direct use. In determining whether a particular structure or article is used directly in producing, delivering or rendering a public utility service, consideration shall be given to the following:
(i) The physical proximity of the items while in use and the proximity of time of their use to the production, rendition and delivery of the utility service.
(ii) The causal relationship between the use of the item and the production, delivery and rendition of the utility service.
(iii) The character of the item, as to whether it is in the nature of a general improvement to the premises that would serve various users or is particularly designed or constructed for public utility use. The fact that particular property may be considered essential to the rendering of a public utility service because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly by a public utility.
(2) Property directly used; predominant use. The purchase or use by a public utility of property in the following categories, when predominantly used directly in rendering a public utility service, shall be exempt from tax. Where a single unit of the property is put to use in two different activities, one of which is a direct use and the other of which is not, the property shall not be exempt from tax unless the public utility makes use of the property more than 50% of the time directly in public utility operations.
(i) General. Machinery, equipment, parts and foundations therefor, and supplies which are used in the actual producing, delivering, or rendering of a public utility service shall be considered to be directly used in public utility operations. Repair parts which are installed and become an integral part of the property is also exempt from tax.
(ii) Pollution control devices. Equipment, machinery and supplies designed and used to control, abate or prevent air, water or noise pollution generated in the rendering of the public utility services shall be deemed to be directly used in the rendition of a public utility service and, therefore, is not subject to tax. In order for property to qualify as exempt pollution control devices, it shall not be necessary that the pollutants be recycled or used in any manner.
(iii) Realty construction; materials, tools and equipment. Construction materials, tools and equipment used to construct, reconstruct, remodel, repair or maintain facilities which are used directly in the production, delivery or rendition of a public utility service shall be deemed to be directly used and therefore shall be exempt from tax. However, tools and equipment used to maintain the facilities shall be exempt only if installed as a part of the facility.
(iv) Research. Property which is used directly in research activities by a public utility shall be exempt from tax, provided that the object of the research is the production of a new or improved product or utility service or method of producing a product or utility service. The exemption does not apply to property used in market research or in other research which is conducted with the objective of improving administrative efficiency.
(3) Property not directly used. Property in the following categories is not directly used in public utility operations and the purchase or use of the property is subject to tax:
(i) Real estate. Construction materials, tools and equipment used to construct, reconstruct, remodel, repair or maintain facilities not used directly in the production, delivery or rendition of a public utility service is subject to tax. The purchase or use of property for use in construction, reconstructing, remodeling, repairing or maintaining a building, road or similar facility, regardless of its purpose, is subject to tax. The term building does not include machinery and equipment and parts therefor, whether the property is designated as real estate or not. Structures such as railroad watchmens shacks, bus terminals, warehouses and toolsheds are considered buildings. However, the machinery and equipment as signal towers, water and fuel tanks, and railroad tracks are not considered buildings.
(ii) Maintenance; tools and equipment. Tools and equipment used but not installed in the maintenance of facilities directly used in the production, delivery or rendition of a public utility service shall be subject to tax. Tools and equipment used in the maintenance of nonexempt facilities shall be subject to tax whether or not they are installed so as to become a component thereof.
(iii) Managerial, sales or other nonoperational activities. Property used in managerial, sales or other nonoperational activities is not directly used in the production, delivery or rendition of a public utility service and is therefore subject to tax. This category includes, but is not limited to, property used in any of the following activities:
(A) Management and administration. Office furniture, supplies and equipment, textbooks and other educational materials, books and records, and other property used by a public utility in recordkeeping and other administrative and managerial work, irrespective of the point of use, is subject to tax. The property includes, but is not limited to, supplies used to record the quality and quantity of work in production or goods in storage, the flow of work, the results of inspection or to instruct workers in routing work or other production activities.
(B) Selling and marketing. Property used in advertising, marketing or selling public utility services or products is not within the scope of the public utility exemption.
(C) Public utility exhibitions. Property used in the exhibition of public utility products or services is subject to tax.
(D) Safety and fire prevention. Property used to prevent or fight fires and equipment and supplies used for programs as safety, accident prevention or fire prevention is subject to tax, even though the equipment or property is required by law, except for drugs, medicines and medical supplies exempted by section 204(17) of the TRC (72 P. S. § 7204(17)).
(E) Employe use. Property used for the personal comfort, convenience or use of employes, is subject to tax. Protective equipment, such as face masks, helmets, gloves, coveralls, goggles, and the like, worn by production personnel is exempt from tax.
(F) Space heating, cooling, ventilation and illumination. Property, including machinery and equipment, fuel or power used to ventilate buildings, lighting for general illumination, air conditioning and other space cooling, space heating and similar property, is subject to tax unless it is established that the use of the property bears an active causal relationship to the production, delivery or rendition of a public utility service.
(G) Activities prior to production, delivery or rendition of services. Property used to transport personnel or to collect, convey or transport other property, and storage facilities or devices used to store or hold property prior to its use in the production, delivery or rendition of a public utility service is subject to tax. Property used to transport, store or hold the actual product which is delivered as a public utility service is directly used and therefore is not subject to tax.
(H) Property used during production, delivery or rendition of services. Property used in managerial, sales or other nonoperational activities is subject to tax even though it is used during the production operation. Illustrations of the property include safety, heating and ventilation equipment, and planking or grating for crosswalks or platforms.
(I) Activities subsequent to production, delivery or rendition of services. Property used to transport or convey personnel or property following the production, delivery or rendition of a public utility service and storage facilities or devices used for that purpose, are not used directly by a public utility and is subject to tax.
(J) Waste disposal. Property used in waste handling and disposal of pollutants is not deemed to be directly used and is subject to tax unless the property qualifies for exemption under subsection (a)(2)(ii). For purposes of this subsection, ash handling equipment used by a public utility electrical generation station is not considered as property used in waste disposal.
(b) Use of exemption certificates. When a public utility purchases exempt property under this section, the public utility shall prepare and deliver to the vendor a properly executed exemption certificate.
The provisions of this § 32.34 amended April 15, 1977, effective April 16, 1977, 7 Pa.B. 1046; amended August 14, 1981, effective August 15, 1981, 11 Pa.B. 2855; amended March 9, 1984, effective March 10, 1984, 14 Pa.B. 843; corrected January 7, 2005, effective December 1, 1990, 35 Pa.B. 256. Immediately preceding text appears at serial pages (233339), to (233340), (215857) to (215858) and (234297).
Notes of Decisions
Direct Use Not Established
Food, nonalcoholic beverages and related nonfood supplies furnished by airliner to passengers and crew members during commercial flights are not directly used in the supply of a public utility service and do not qualify for an exclusion under the use tax provisions in accordance with 72 P. S. § 7201(o). American Airlines v. Board of Finance and Revenue, 665 A.2d 417 (Pa. 1995).
Food, nonalcoholic beverages and related nonfood supplies furnished to passengers and crew members during flight are directly used in the rendition of a public utility service and are, therefore, exempt from use tax. USAir, Inc. v. Commonwealth, 665 A.2d 417 (Pa. 1995).
Taxpayer insisted that the company leased its equipment to other Public Utility Commission entities for use in public utility service, and that such leases would be found in the boxes of documents. However, the taxpayer was unable to identify which boxes, among the many piled in the back of the courtroom, contained these leases and after allowing the taxpayer time to select several boxes as possible sites for these leases and marking these boxes for identification, no leases were identified in the subsequent inventory. Therefore, the taxpayer failed to prove that the assessed equipment was leased to a Commission licensed entity. Fiore v. Commonwealth, 668 A.2d 1210 (Pa. Cmwlth. 1995).
Evidence Supporting Exemption
In order for a taxpayer to prove an entitlement to an exemption from use tax, a taxpayer must establish that the entity using the assessed items of property has public utility authority, and that the assessed items of property were directly and predominantly used in the rendition of a public utility service, or in manufacturing. In the case of those vehicles required to be registered under the Vehicle Code, a taxpayer must prove an entitlement to an exemption by showing that the vehicles were directly used by a business with common carrier authority. Fiore v. Commonwealth, 668 A.2d 1210 (Pa. Cmwlth. 1995).
This section cited in 61 Pa. Code § 32.25 (relating to steam, gas, electricity, fuel oil and kerosene); and 61 Pa. Code § 60.20 (relating to telecommunications service).
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