Sec. 6. (a) Property which is owned by a domestic corporation of this state is exempt from property taxation if:
(1) the corporation owns a water system or waterworks;
(2) the corporation is, pursuant to a contract, supplying its entire output of water at wholesale rates to a city or town of this state; and
(3) the city or town which receives the water owns at least ninety-five percent (95%) of the corporation's capital stock.
(b) For purposes of this section, stock is preferred stock and not capital stock if:
(1) fixed dividends are payable to the stock owner at a rate not to exceed six percent (6%) per year; and
(2) the stock owner has no further right to participate in the profits of the corporation.