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§ 11-10­5r. They state the position of the Tax Commissioner on the tax consequences of a stated transaction or event under existing statutes, rules or policies. Technical Assistance Advisories must be released to the public after identifying characteristics or facts are omitted or modified to not disclose the name or identity of the taxpayer. A Technical Assistance Advisory has no precedential value except to the taxpayer requesting the advisory unless it is specifically stated otherwise in the Advisory. Any modification of an advisory may only be prospective. Technical Assistance Advisory 90-006 is declared to be of precedential value to other taxpayers. On behalf of your client, ABC Partners ("Taxpayer"), you requested issuance of a technical assistance advisory concerning Taxpayer's liability for West Virginia consumers sales and service tax or use tax ("consumers sales and use taxes") with respect to construction of a manufacturing facility which it will own and operate through its employees or the services of a contract operator. Electric power generated at the manufacturing facility will be transported to a point in West Virginia and sold to a power company which is a public utility in this State. Taxpayer and its partners are not affiliated with the public utility; and neither Taxpayer nor any of its partners is regulated by the West Virginia Public Service Commission. The surplus steam generated at the manufacturing facility will be transported through pipelines and sold to a partnership operating a saw mill and kiln for use in drying lumber. Majority interests in that partnership are owned by Taxpayer's partners. The transportation and sale of the steam are not regulated by the West Virginia Public Service Commission. Taxpayer has entered into a Turnkey Design Construction Agreement ("Agreement") which requires the contractor to design, construct and equip the manufacturing facility. This Agreement allows Taxpayer to directly purchase tangible personal property from vendors for the express purpose of reducing or eliminating the cost of the West Virginia consumers sales and use taxes that otherwise would be directly or ultimately bone by the Taxpayer. In addition, this Agreement provides for the appointment of the contractor as Taxpayer's agent for the express purpose of allowing Taxpayer to purchase, through its agent, tangible personal property and services and to thereby avoid consumers sales and use tax liability with respect to such purchases. When purchases are made by the contractor as Taxpayer's agent, a bill, invoice, contract or other evidence of the transaction will be made out in the name of the Taxpayer and payment for the same will be made on a check drawn on a trust account set up by the agent for Taxpayer. The language of the Agreement which provides for the direct purchase of tangible personal property by the Taxpayer and for the appointment of the contractor as Taxpayer's purchasing agent is set forth in Sections 4.15 and 4.16 which read as follows: Section 4.15 Direct Procurement by Owner. (a) In order to save the cost of West Virginia sales tax, Owner, at its sole discretion and option, shall have the right to procure, directly from the Subcontractor or Vendor thereof, all Work or Product required to be furnished by Contractor hereunder and in furtherance of the foregoing, Owner shall have the right to enter into one or more contracts or purchase orders directly with any such Subcontractor or Vendor for any such Work or Product (such direct procurement by Owner being referred to herein as "Direct Procurement"). Notwithstanding the foregoing, Contractor shall have the sole right and responsibility to choose all Work and Product required to be furnished by Contractor hereunder; provided, however, that prior to entering into any contract or purchase order with any Subcontractor or Vendor, Contractor shall (i) so long as contractor is serving as Direct Procurement agent for Owner under Section 4.16 [Contractor as Direct Procurement Agent; etc.] enter into such contract or purchase order as agent for Owner; or (ii) if and after such Direct Procurement agency has been terminated, Notify Owner of the opportunity of Direct Procurement, in which case Owner shall have three (3) Business Days in which to elect whether or not to enter into a contract or purchase order for Direct Procurement. All Notices from Contractor to Owner hereunder shall be provided in a timely manner so as to avoid any delays and Contractor shall supply Owner, at no cost of Owner, with all necessary specifications, construction schedules and other data and information appropriate to allow Owner to issue correct and timely contracts and purchase orders. All contracts and purchase orders for Direct Procurement shall be approved by Contractor. All amounts paid by Owner for Direct Procurement (whether from the Trust Account as herein after defined or, in the event the Trust Account is terminated, from Owner's other funds), including all taxes (other than West Virginia sales or use taxes), freight, insurance, handling, delivery and other charges, shall, after prompt approval by Contractor, be credited against the Price ("the "Direct Procurement Credit"). (b) All contracts and purchase orders for Direct Procurement shall name Owner as the sole contracting party or purchaser thereunder, and shall provide that warranties, title and all other indicia of ownership and contract rights shall pass and run directly from the Subcontractor or Vendor, as the case may be, to Owner and not to Contractor. All statements for Work or Product obtained by Owner pursuant to this Section 4.15 shall be invoiced in Owner's name. (c) The Direct Procurements effected by Owner pursuant to this Section 4.15 shall in no way affect the passage of title or risk of loss or damage to the Work or any Product, all of which shall remain as provided in Section 18.11 [Title and Risk of Loss], or relieve Contractor from Contractor's responsibility for that item of Work or Product or modify, amend, suspend, delay or otherwise affect any obligation, duty or liability of Contractor to Owner under this Agreement; and Contractor's responsibility under this Agreement for such Work or Product shall be as if Contractor had itself purchased that Work or Product. Without limiting the generality of the foregoing, Contractor guarantees completion of all Work for the Price and within the time periods specified by this Agreement, irrespective what Work or Product Owner may procure directly with Contractor's approval. (d) The right of Owner to effect Direct Procurements is intended solely to save Owner the cost of West Virginia sales tax. Neither the existence of such right nor the exercise or failure to exercise such right shall create any duty, obligation or liability of Owner to Contractor or (except as otherwise set forth in any subcontract or purchase order issued by Owner under this Section 4.15 and except as provided in Section 12.03 [Contractor Indemnification for Taxes]) to any Contractor Indemnitee. Furthermore, Owner's entering into contracts or purchase orders for Direct Procurements shall not constitute an approval, endorsement, or confirmation of any Work or Product covered by such contract or purchase order or an acknowledgement or agreement by Owner that the same satisfies the conditions of this Agreement. Contractor shall have, and Owner hereby grants to Contractor, the full rights of Owner to enforce all obligations of the Subcontractors and Vendors under such subcontracts and purchase orders, including, but not limited to, obligations respecting time of performance, payment, retention, assessment of liquidated damages and termination. Section 4.16 Contractor as Direct Procurement Agent; Contractor as Paying Agent. (a) Without limiting the generality of Section 4.15 [Direct Procurement by Owner], Owner hereby appoints Contractor, and Contractor hereby agrees to serve, as Owner's sole and exclusive agent, in Owner's name, place and stead, and without further authorization or approval from Owner, to effect any Direct Procurement(irrespective of the amount thereof) and to exercise all rights of Owner under Section 4.15 [Director Procurement by Owner]. The agency hereby created shall continue in full force and effect from time to time unless and until Owner terminates the same as hereinafter provided. Owner may at any time, in its sole discretion and without liability to Contractor, terminate the agency hereby created by Notice to Contractor. Such termination shall not affect any rights of Owner under Section 4.15 [Direct Procurement by Owner] or this Agreement and such termination shall not invalidate or otherwise affect any actions taken or commitments made prior to such termination by Contractor as agent for Owner hereunder. (b) Without limiting the generality of Section 4.15 [Direct Procurement by Owner], Owner hereby appoints Contractor, and Contractor hereby agrees to serve, as Owner's sole and exclusive agent, in Owner's name, place and stead, and without further approval or authorization from Owner, to pay all sums owed from time to time by Owner (i) to Subcontractors or Vendors with respect to Direct Procurements; and (ii) to Contractor under this Agreement. To effect the paying agency hereby created, Contractor shall establish and maintain with a banking institution acceptable to Owner and the Financing Institutions, at Contractor's own cost and expense, a checking account entitled Construction Corporation, Agent for ABC Power Partners, L.P., Trust Account" (the "Trust Account"). Owner shall make payments into the Trust Account from time to time as required by this Section 4.16. Contractor shall not make any deposits into the Trust Account and shall not commingle any funds in or from the Trust Account with any funds of Contractor. Contractor, acting solely as agent for Owner and not for its own account, shall from time to time withdraw funds from the Trust Account by checks written in payment of all Direct Procurements, whether such Direct Procurements were made by Contractors as agent for Owner or by Owner itself, and in payment of all sums owing to Contractor, all such payments to be made as and when required by this Agreement. Contractor shall not withdraw funds from the Trust Account for any other purpose or in payment of any other obligations. Owner shall not have any right to withdraw funds from the Trust Account. The payment arrangements set forth in this subsection (b) shall continue in full force and effect unless and until Owner terminates the same as hereinafter provided. Owner may at any time in its sole discretion and without liability to Contractor, terminate the payment arrangements herein set forth by Notice to Contractor. Such termination shall not affect any rights of Owner under Section 4.15 [Direct Procurement by Owner] or this Agreement; provided, that such termination shall not invalidate or otherwise affect any actions taken or commitments made by Contractor under this subsection (b) prior to such termination. The agency established and provided for in this subsection (b) is in addition to and separate from the agency established in subsection (a) of this Section 4.16. (c) With each Contractor's Invoice, Contractor shall (i) advise Owner of all Direct Procurements obtained by Contractor during the period covered by such Contractor's Invoice, (ii) furnish Owner with such detail and documentation in connection therewith as Owner may request, including copies of all contracts, purchase orders, or other writings entered into or issued by Contractor as agent for Owner, and (iii) advise Owner of the dollar amount of the Direct Procurements applicable to such Contractor's Invoice. At the time Owner is required to pay such Contractor's Invoice, Owner shall deposit directly into the Trust Account an amount equal to the dollar value of all amounts which Owner is required to pay under the Agreement with respect to such Contractor's Invoice, including payments required with respect to all Director Procurements applicable to such Contractor's Invoice. Immediately upon such deposit, Contractor shall as paying agent for Owner under this Section 4.16, pay with respect to such Contractor's Invoice all amounts then due from Owner to Contractor under this Agreement and to Subcontractors or Vendors under Direct Procurements. (d) Contractor agrees that a Direct Procurement shall be deemed applicable to a Contractor's Invoice only when and to the extent that the Earned Value of the Work or Product covered by such Direct Procurement would have been payable to Contractor under Section 4.04 [Monthly Payment] or Section 4.07 [Acceptance of Facility Performance; Final Payment and Contractor's Receipt] had the Product or Work been procured directly by Contractor rather than by Direct Procurement. Contractor further agrees that neither Direct Procurement nor the funding of the Trust Account shall have the effect of accelerating or exceeding the Schedule of Values and that Owner shall not be required to pay for any Work or Product, whether by payments to Contractor or by funding the Trust Account, prior to the date set forth in or determined in accordance with Exhibit 5 [Schedule of Values]. (e) Contractor agrees and guarantees to Owner, that Contractor shall manage Direct Procurements and the Trust Account so that all payments for Direct Procurements and all payments due to Contractor under this Agreement shall be made from the Trust Account and so that the Trust Account shall be sufficiently funded at all times for such purpose; provided only that Owner makes deposits into the Trust Account as required hereunder. Contractor agrees and guarantees to Owner, that unless and until Owner terminates the Trust Account, Owner shall not have to pay any Vendor or Subcontractor pursuant to this Agreement otherwise than by payments made from the Trust Account by Contractor as agent for Owner. (f) In consideration of and compensation for Contractor's services as paying agent hereunder, Contractor shall be entitled to retain as its sole property, all interest earned with respect to funds from time to time on deposit in the Trust Account. Contractor shall not be entitled to any other or additional compensation for such services as paying agent. Contractor's services as Owner's Direct Procurement agent shall be included in the Price and Contractor shall not be entitled to any other or additional compensation for such services. (g) Owner shall have the right, exercisable through its agents, at such reasonable times as Owner may determine, but upon not less than three (3) Day's Notice to Contractor, to examine Contractor's books, records and data relating to Direct Procurements and the Trust Account, including all purchase orders, invoices, statements, cancelled checks and bank statements, to assure Owner that the Direct Procurement agency and the paying agency hereby created are being exercised in full accordance with this Section 4.16 and all other covenants, terms and conditions of this Agreement. Contractor shall preserve in safekeeping at its own cost and expense all Contractor's books and original records and data relating to Direct Procurements and the Trust Account, including originals of all purchase orders, invoices, statements, cancelled checks and bank statements, for the full records' retention periods required by Law. After Final Acceptance, Contractor may discharge the foregoing duty of retention as to any item by physically delivering that item to Owner together with Notice advising Owner of such delivery. Contractor's obligations set forth in this subsection (g) shall survive any termination of this Agreement by Owner or Contractor and shall be continuing obligations of Contractor. Taxpayer proposes to directly purchase from suppliers or manufacturers various items of tangible personal property during the construction of the facility. Such purchases may be made as early as December, 1989, even though the facility is not expected to be operational before October, 1992. Taxpayer requested issuance of a Technical Assistance Advisory pursuant to W. Va. § 11-10-5r and with respect to the facts provided for that purpose requested the following rulings: 1. Pursuant to West Virginia Code § 11-15-9(v), Taxpayer may during the construction of the manufacturing facility purchase exempt from the imposition of the West Virginia Consumers Sales and Service Tax tangible personal property and services (other than gasoline or special fuel) both directly or indirectly used or consumed in its business of generating or producing electric power. 2. Pursuant to West Virginia Code § 11-15-9(g), Taxpayer may during the construction of the manufacturing facility purchase exempt from the imposition of the West Virginia Consumers Sales and Service Tax tangible personal property and services (other than gasoline and special fuel) directly used or consumed in the activity of manufacturing steam and electric power (by its own employees and/or through the efforts of a contract operator). 3. Pursuant to West Virginia Code § 11-15A-3(a)(2) and (4), any and all purchases by Taxpayer, exempt from Consumers Sales and Service Tax by virtue of West Virginia Code § 11-15-9(v) or §

11­15­9(g) are correspondingly exempt from West Virginia Consumers Use Tax. 4. Pursuant to West Virginia Code § 11-15-2, the Turnkey Design and Construction Agreement is a contract for contracting services and all purchases of tangible personal property and services by the Contractor for use or consumption in the providing of the contracting services described in the Agreement shall be treated, for purposes of the West Virginia Consumers Sales and Service Tax and the West Virginia Use Tax, in accordance with the provisions of West Virginia Code § 11-15-8a. 5. Pursuant to West Virginia Code § 11-15-2, the Turnkey Design and Construction Agreement is a contract for contracting services and all purchases of contracting services described in the Agreement by Taxpayer shall be treated, for purposes of the West Virginia Consumers and Sales Tax and the West Virginia Use Tax, in accordance with the provisions of West Virginia Code § 11-15-8a. 6. Pursuant to section 110-15-19 of the West Virginia Code of State Regulations, all purchases of tangible personal property and otherwise taxable services made pursuant to the provisions of the Turnkey Design and Construction Agreement by the agent of Taxpayer wherein any bill, invoice, contract or other evidence of the transaction is made out in the name of Taxpayer and the payment is made on a check drawn on a trust account set up the agent for Taxpayer shall be exempt from the imposition of the Consumers Sales and Service Tax. 7. Pursuant to section 110-15-19 of the West Virginia Code of State Regulations, all purchases of tangible personal property and otherwise taxable services made pursuant to the provisions of the Turnkey Design and Construction Agreement by the agent of Taxpayer wherein any bill, invoice, contract or other evidence of the transaction is made out in the name the Taxpayer and the payment is made on a check drawn on a trust account set up by the agent for Taxpayer shall be exempt from imposition of the Use Tax.Discussion The Tax Commissioner may in his discretion issue a technical assistance advisory upon the written request of any person for the Commissioner's position on the tax consequences of a stated transaction or event under existing statutes, rules or policies. W.

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§ 11-10-5r(a). A technical assistance advisory has no precedential value except to the taxpayer who requests the advisory and then only for the specific transaction addressed in the technical assistance advisory, unless specifically stated otherwise in the advisory. W.

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§ 11-10-5r(b). A copy of the technical assistance advisory must be released to the public after identifying characteristics or facts about the taxpayer are omitted or modified to preserve taxpayer's confidentiality. W.

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§ 11-10-5r(e). A general, broad base consumers sales and service tax ("consumers sales tax") is imposed by W.

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§ 11-15-1 et. seq. on all sales of tangible personal property or taxable services within this State. A compensating use tax is imposed by W.

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§ 11-15A-1 et. seq. on all purchases of tangible personal property or taxable services from out-of-state vendors for use in West Virginia. Transactions which are exempt from consumers sales tax are exempt from use tax, unless the property or service purchased in a transaction exempt from consumers sales tax is used in a taxable manner or for a taxable purpose. W.

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§ 11-15A-3(a)(2). Exemptions from tax are strictly construed against the person claiming the exemption. Wooddell v. Dailey, 160 W. Va. 65, 230 S.E. 2d 466 (1976) (services of interior decorator not exempt from sales tax as professional services). The generation of electric power for sale to a third party is an activity subject to business and occupation tax ("B & O tax"), W. Va. Code § 11-13-2 (imposition of privilege tax), under W.

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§§ 11-13-2m or 11-13-2n (business of generating or producing electricity). Taxpayer is not a public service or utility business taxable under section 11-13-2d (public service or utility business) of the B & O tax. A person who generates or produces electric power through the activity of another, e.g. contract operator of the manufacturing facility, will nevertheless be the person taxable under W.

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§§ 11-13-2m or 11-13-2n.A. Ruling Request No. 1. The exemption from consumers sales tax set forth in W.

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§

11­15­9(v) applies to tangible personal property or taxable services used or consumed in the exercise of a privilege taxable which is subject to B & O tax, severance tax or telecommunications tax. This exemption reads: (v) Notwithstanding the provisions of subsection (g) of this section or any provision of this article to the contrary, sales of property and services to persons subject to tax under article thirteen, thirteen-a or thirteen-b of this chapter: Provided, That the exemption herein granted shall apply both to property or services directly or not directly used or consumed in the conduct of privileges which are subject to tax under such articles but shall not apply to purchases of gasoline or special fuel. "Manufacturing" is defined in W.

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§ 11-15-2(p) which reads: (p) "Manufacturing" means a systemic operation or integrated series of systematic operations engaged in as a business or segment of a business which transforms or converts tangible personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed. The generation of electricity from refuse coal is a manufacturing activity as defined in W. Va. Code § 11-15-2(p). A by-product of that manufacturing activity is steam. We initially observe that Taxpayer is technically not subject to B & O tax under article 13, chapter 11 of the West Virginia Code until Taxpayer begins generating electricity in this State for sale, profit or commercial use. Therefore, one may argue that Taxpayer does not satisfy the condition precedent and is not entitled to assert exemption from tax under subsection 11-15-9(v) until Taxpayer begins generating electricity for sale, profit or commercial use. We reject that argument in favor of a construction which looks at Taxpayer's first use of the tangible personal property or the results of the taxable service. If the first use is in the conduct of activity subject to B

&

O tax, then exemption 11-15-9(v) applies. If the first use is not for that purpose, then exemption 11-15-9(v) does not apply and the purchase is taxable unless some other exemption applies. While exemptions from tax are strictly construed against the person claiming the exemption, Wooddell v. Dailey, supra, "[t]he rule permits, and other law requires, rational interpretation within the terms actually used." State v. Kittle, 87 W. Va. 526, 530, 105 S.E. 775 (1921) (parsonage exempt from property tax as property used for religious purposes), citing Reeves v. Ross, 61 W. Va. 7; Bolles v. Outing Co. 175 U.S. 262; State v. Small, 19 Minn. 216; Lewis' Stat. Con., 2nd Ed, Sec. 530. There are at least three considerations which support this construction of exemption 11-15-9(v). The first consideration is that all persons constructing commercial power plants in this State are treated alike, whether they are already subject to B & O tax or will be subject to B & O tax once the power plant begins generating electricity. The second consideration is language in the compensating use tax law which exempts from use tax "[t]angible personal property or services, the gross receipts from the sale of which are exempt from the sales tax by the terms of article fifteen...and the property or services are being used for the purpose for which it was exempted." W.

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§ 11-15A-3(a)(3). The third consideration is that historically the consumers sales tax business exemptions have been allowed and applied to "start up purchases" of a new business. Ruling No. 1: Taxpayer may claim exemption from consumers sales tax under W.

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§ 11-15-9(v) for its purchases of tangible personal property or taxable services from vendors engaged in business in this State during construction of the manufacturing facility when such tangible personal property, or the results of the taxable services, will be used or consumed in the conduct or exercise of a privilege subject to B & O tax, whether such purchases are directly or indirectly used (or consumed) in the conduct or exercise of a privilege subject to B & O tax. When the purchase will be used (or consumed) in an activity subject to B & O tax and in some activity not subject to B & O tax, the amount of consideration involved in the transaction (gross proceeds of sale) must be apportioned under W.

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§11-15-9e. That portion of the consideration which is not exempt from tax under W.

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§ 11-15-9(v), as construed by the Tax Commissioner, is taxable unless some other exemption applies. The burden of proof is on the Taxpayer to show by clear and convincing evidence that exemption from tax applies to some or all of the purchase price. B. Ruling Request No. 2. The exemption from consumers sales tax set forth in W.

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§

11­15­9(g) applies to sales of services, machinery, supplies and materials directly used or consumed in the activity of manufacturing, transportation, transmission, communication or production of natural resources, except gasoline or special fuel. This exemption reads: (g) Sales of ... services, machinery, supplies and materials directly used or consumed in the activities of manufacturing, transportation, transmission, communication or the production of natural resources in the business or organizations named above and shall not apply to purchases of gasoline or special fuel. The term "directly used or consumed" as used in exemption 11-15-9(g) is a word of art. It is defined in W.

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§ 11-15-2(n) which reads in pertinent part as follows: (n)(1) "directly used or consumed" in the activities of manufacturing ... means used or consumed in those activities or operations which constitute an integral and essential part of such activities, as contrasted with an distinguished from those activities or operations which are simply incidental, convenient or remote to such activities. (2) Uses of property or consumption of services which constitute direct use or consumption in the activities of manufacturing ... includes only: (A) In the case of tangible personal property, physical incorporation of property into a finished product resulting from manufacturing production ...; (B) Causing a direct physical, chemical or other change upon property undergoing manufacturing production ...; (C) Transporting or storing property undergoing ... manufacturing production ...; (D) Measuring or verifying a change in property directly ... manufacturing production ...; (E) Physically controlling or directing the physical movement or operation of property directly used in manufacturing production ...; (F) Directly and physically recording the flow of property undergoing ... manufacturing production ...; (G) Producing energy for property directly used in manufacturing production ...; (H) Facilitating the transmission of gas, water, steam or electricity from their point of their diversion to property directly used in manufacturing production ...; (I) Controlling or otherwise regulating atmospheric conditions required for manufacturing production ...; (J) Serving as an operating supply for property undergoing manufacturing production ...; (K) Maintenance or repair of property directly used in ... manufacturing production ...; (L) Storage, removal or transportation of economic waste resulting from the activities of manufacturing ...; (M) Pollution control or environmental quality or protection activity directly relating to the activities of manufacturing, ... and personnel, plant, product or community safety or security activity directly relating to the activities of manufacturing, ...; or (N) Otherwise be used as an integral and essential part of .. manufacturing production .... (3) Uses of property or services which would not constitute direct use or consumption in the activities of manufacturing, ... includes, but are not limited to: (A) Heating and illumination of office buildings; (B) Janitorial or general cleaning activities; (C) Personal comfort of personnel; (D) Production planning, scheduling of work, or inventory control; (E) Marketing, general management, supervision, finance, training, accounting and administration; or (F) An activity or function incidental or convenient to transportation, communication, transmission, manufacturing production or production of natural resources, rather than an integral and essential part of such activities. The basic concept is that purchases directly used in activities or operations which are an integral and essential part of the manufacturing activity are exempt from consumers sales and use taxes, while purchases which are instead used in activities or operations which are incidental, convenient, or remote to such manufacturing activities are taxable for consumers sales and use tax purposes. 110 C.S.R. 15, § 123, Direct Use Concept, pg. 187-203. With respect to manufacturing, see 110 C.S.R. 15, § 123.4.2, Manufacturing, pg. 193-196. Previously we discussed whether a person is entitled to claim exemption from consumers sales tax under subsection 11-15-9(v) prior to actually engaging in business activity subject to B & O tax. A similar question arises with respect to exemption 11-15-9(g); may one claim entitlement to this exemption before manufacturing activity begins. We believe this exemption may be claimed for reasons previously discussed. Ruling No. 2: Taxpayer may claim exemption from consumers sales tax under W.

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§ 11-15-9(g) for its purchases of tangible personal property or taxable services from vendors engaged in business in this State during construction of the manufacturing facility when such tangible personal property will be directly used or directly consumed in the activity of manufacturing steam or electric power (by its own employees and/or through the efforts of a contract operator). Whenever purchases will be directly used or directly consumed in a manufacturing activity and also directly used or directly consumed in some other activity, the amount of consideration involved in the transaction (gross proceeds of sale) must be apportioned under W.

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§ 11-15-9e. That portion of the consideration which is not exempt from tax under W.

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§ 11-15-9(g), as construed by the Tax Commissioner, is taxable unless some other exemption applies. The burden of proof is on the Taxpayer to show by clear and convincing evidence the extent to which exemption applies. Purchases indirectly used (or consumed) in a manufacturing activity are subject to consumers sales and service tax unless some exemption provision applies. If the manufacturing facility is operated by a contract operator, the fees paid to the contract operator will exempt from consumers sales tax under W.

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§ 11-15-9(g) to the extent such fees are for services directly used in manufacturing steam. Fees for services not directly used in manufacturing steam will be taxable unless some other exemption applies. C. Ruling Request No. 3. The use tax imposed by W.

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§ 11-15A-2 is an excise tax on using tangible personal property or the results of taxable services in this State. The Legislature intends for the consumers sales tax law and the use tax law to be complementary in their imposition, administration and collection. W.

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§ 11-15A-1a. This complementary relationship between the two taxes is found in three exemptions in the use tax law. W.

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§ 11-15A-3 (a)(2), (3) and (4) reads as follows: (2) Tangible personal property or services, the gross receipts from the sale of which are exempt from the sales tax by the terms of article fifteen, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended, and the property or services are being used for the purpose for which it was exempted. (3) Tangible personal property or services, the gross receipts or the gross proceeds from the sale of which are required to be included in the measure of the tax imposed by article fifteen, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended, and upon which the tax imposed by said article fifteen has been paid. (4) Tangible personal property or services, the sale of which in this state is not subject to the West Virginia consumers sales tax. Ruling No. 3: Exemptions 11-15-9 (g) and (v) of the consumers sales tax law are incorporated by reference into the use tax law by exemptions 11-15A-3 (a)(2) and (4). Therefore, whether Taxpayer purchases tangible personal property or taxable services from a vendor in this State or from an out-of-state vendor, the consumers sales and use tax consequences will be the same. The only exception is when tangible personal property or taxable services are purchased exempt from consumers sales tax and then the tangible personal property or the results of the services are used in a taxable manner or for a taxable purpose.D. Ruling Request No. 4 and 5. Contracting is a service not subject to consumers sales tax or to use tax. The term "contracting" is defined in W.

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§ 11-15-2(o) which reads in pertinent part as follows: (1) In general. -- "Contracting" means and includes the furnishing of work, or both materials and work, for another (by a sale contractor, general contractor, prime contractor or subcontractor) in fulfillment of a contract for the construction, alteration, repair, decoration or improvement of a new or existing building or structure, or any part thereof, or for removal or demolition of a building or structure, or any part thereof, or for the alteration improvement or development of real property. (2) Form of contract not controlling. -- An activity that falls within the scope of the definition of contracting shall constitute contracting regardless of whether such contract governing the activity is written or verbal and regardless of whether it is in substance or form a lump sum contract, a cost-plus contract, a time and materials contract (whether or not open-ended), or any other kind of construction contract. (3) Special rules. -- For purposes of this definition: (A) The term "structure" includes, but is not limited to, everything built up or composed of parts joined together in some definite manner and attached or affixed to real property, or which adds utility to real property or any part thereof, or which adds utility to a particular parcel of property and is intended to remain there for an indefinite period of time. (B) The term "alteration" means and is limited to alternations which are capital improvements to a building or structure or to real property. (C) The term "repair" means and is limited to repairs which are capital improvements to a building or structure or to real property. (D) The term "decoration" means and is limited to decorations which are capital improvements to a building or structure or to real property. (E) The term "improvement" means and is limited to improvements which are capital improvements to a building or structure or to real property. (F) The term "capital improvement" means improvements that are affixed to or attached to and become a part of a building or structure or the real property or which add utility to real property or any part thereof and that last or are intended to be relatively permanent. The turnkey contract for construction of the manufacturing facility is a contract for construction of a "structure" or "improvement" to real property that is a "capital improvement" as those terms are defined in W.

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§

11­15­2(o). Accordingly, the contract price is not subject to consumers sales tax. Tangible personal property or taxable services purchased by persons engaged in the business of contracting are deemed to be used or consumed by the contractor for purposes of the consumer sales and use taxes. Prior to March 1, 1989, purchases of services, machinery, supplies, and materials directly used or consumed in contracting activity were exempt from consumers sales and use taxes. W.

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§ 11-15-2(n) (defining "directly used or consumed") and § 11-15-9(g) direct use exemption for contractors). Ruling No. 4: The Turnkey Design and Construction Agreement is a contract for contracting services under W.

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§ 11-15-2(i) and (o). All purchases of tangible personal property and taxable services by the Contractor for use or consumption in the providing of the contracting services described in the Agreement shall be treated as used or consumed by the contractor and taxable under the consumers sales and use tax laws as provided in W.

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§ 11-15-8a. Ruling No. 5: The Turnkey Design and Construction Agreement is a contract for contracting services and all purchases of contracting services described in the Agreement by the Taxpayer shall be treated for consumers sales and use tax purposes in accordance with the provisions of W.

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§ 11-15-8a.E. Ruling Request No. 6 and 7. During the first extraordinary session of the Legislature in 1989, a fundamental policy change was made in how contractors are taxed under the consumers sales tax law. Since March 1, 1989, contractors are no longer entitled to claim the direct use exemption unless the contract falls under one of the transition rules in W.

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§ 11-15-8a(b). More specifically, purchases by a contractor of tangible personal property or taxable services for use or consumption in the providing of contracting services are taxable. W.

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§ 11-15-8(a). In that same legislation, the purchase for resale exemption in W.

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