Tax Type
Retail Sales and Use Tax
Description
Welding, Fabrication, and Repairing
Topic
Collection of Tax
Exemptions
Date Issued
10-05-2000
October 5, 2002
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek a ruling regarding the classification of * * * (the "Taxpayer") for purposes of the industrial manufacturing exemption. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the business of welding, repairing, and fabricating steel products for sale to customers. In the department's last audit of the Taxpayer's business, the auditor treated the Taxpayer as a repair business based on how the Taxpayer had treated itself. The Taxpayer is seeking reclassification of its business, as the Taxpayer believes that it is an industrial manufacturer and should enjoy the industrial manufacturing exemption. The Taxpayer indicates that approximately 65% of its retail business involves the sale to customers of fabricated steel it produces to customers.
RULING
Code of Virginia § 58.1-609.3(2)(iii) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacements thereof . . . used directly in . . . manufacturing . . . products for sale or resale." Such property may be purchased exclusive of the tax only by an industrial manufacturer or processor for direct use in producing products for sale or resale. See Title 23 of the Virginia Administrative Code (VAC) 10-210-920(A).
In Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973), the Virginia Supreme Court held that the above cited statute was intended "to provide exemption for machinery and tools used in . . . manufacturing . . . products for sale or resale only in the industrial sense." For purposes of the manufacturing exemption, the term "industrial in nature" is defined in Code of Virginia § 58.1-602 to include, "those businesses classified in codes 10 through 14 and 20 through 39 published in the Standard Industrial Classification [SIC] Manual." (Insert added.)
In the 1987 edition of the SIC Manual, Group 34 includes businesses manufacturing metal products such as sheet metal work, metal doors, hand tools, cutlery, fabricated structural metal products, metal forgings and other miscellaneous metal and wire products. Based on the Taxpayer's activities and the above SIC classification, I conclude that the Taxpayer does satisfy the "industrial in nature" requirement. Accordingly, the Taxpayer is entitled to the industrial manufacturing exemption because it is fabricating steel primarily (more than 50%) for sale or resale. The Taxpayer may purchase exempt from the tax machinery, tools or repair parts, fuel, power, energy, or supplies used directly in the fabrication of steel products for sale. See enclosed copy of Public Document 94-264 (8/23/94).
Please note that if the Taxpayer's business activities change so that it is no longer fabricating steel primarily for sale or resale, the manufacturing exemption may not be available. In such a case, I would advise the Taxpayer to request another ruling from the department regarding the availability of the exemption.
If you have any further questions, please contact * * * Office of Tax * * * Policy, * * *
Danny M. Payne
Tax Commissioner
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek a ruling regarding the classification of * * * (the "Taxpayer") for purposes of the industrial manufacturing exemption. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the business of welding, repairing, and fabricating steel products for sale to customers. In the department's last audit of the Taxpayer's business, the auditor treated the Taxpayer as a repair business based on how the Taxpayer had treated itself. The Taxpayer is seeking reclassification of its business, as the Taxpayer believes that it is an industrial manufacturer and should enjoy the industrial manufacturing exemption. The Taxpayer indicates that approximately 65% of its retail business involves the sale to customers of fabricated steel it produces to customers.
RULING
Code of Virginia § 58.1-609.3(2)(iii) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacements thereof . . . used directly in . . . manufacturing . . . products for sale or resale." Such property may be purchased exclusive of the tax only by an industrial manufacturer or processor for direct use in producing products for sale or resale. See Title 23 of the Virginia Administrative Code (VAC) 10-210-920(A).
In Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973), the Virginia Supreme Court held that the above cited statute was intended "to provide exemption for machinery and tools used in . . . manufacturing . . . products for sale or resale only in the industrial sense." For purposes of the manufacturing exemption, the term "industrial in nature" is defined in Code of Virginia § 58.1-602 to include, "those businesses classified in codes 10 through 14 and 20 through 39 published in the Standard Industrial Classification [SIC] Manual." (Insert added.)
In the 1987 edition of the SIC Manual, Group 34 includes businesses manufacturing metal products such as sheet metal work, metal doors, hand tools, cutlery, fabricated structural metal products, metal forgings and other miscellaneous metal and wire products. Based on the Taxpayer's activities and the above SIC classification, I conclude that the Taxpayer does satisfy the "industrial in nature" requirement. Accordingly, the Taxpayer is entitled to the industrial manufacturing exemption because it is fabricating steel primarily (more than 50%) for sale or resale. The Taxpayer may purchase exempt from the tax machinery, tools or repair parts, fuel, power, energy, or supplies used directly in the fabrication of steel products for sale. See enclosed copy of Public Document 94-264 (8/23/94).
Please note that if the Taxpayer's business activities change so that it is no longer fabricating steel primarily for sale or resale, the manufacturing exemption may not be available. In such a case, I would advise the Taxpayer to request another ruling from the department regarding the availability of the exemption.
If you have any further questions, please contact * * * Office of Tax * * * Policy, * * *
Danny M. Payne
Tax Commissioner
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