Tax Type
Retail Sales and Use Tax
Description
Log yard and sawmill; Fabrication
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
04-14-2000
April 14, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to ***** (the ATaxpayer"), for the period October 1995 through September 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a log yard and sawmill, and entered into a contract with a manufacturing company to operate its log yard and saw mill exclusively for the manufacturer. The contract provided that the manufacturer's logs would be cut by the Taxpayer for use by the manufacturer in its production operations. The department's auditor classified the Taxpayer as a "contract cutter," holding the Taxpayer liable for the tax on purchases of parts, supplies and fuel used in fulfilling the contract with the manufacturer.
The Taxpayer disagrees with the assessment and relies on Code of Virginia § 58.1--609.2, which allows an exemption for machinery, tools, repair parts and other property used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold. The Taxpayer also contends that the logs are materials for future processing or manufacturing into articles of tangible personal property for resale. The Taxpayer maintains that its purchases of parts and supplies are exempt from the tax under Code of Virginia § 58.1--609.3 because they are used directly in the manufacturing process.
DETERMINATION
Harvesting of Forest Products
Title 23 of the Virginia Administrative Code (VAC) 10-210-700 allows an exemption from the sales and use tax for "[a] harvester's purchase of machinery and tools and their repair parts, fuel, power, energy or supplies used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold....@ The term "harvesting of forest products" is defined to mean "the business of severing products from forests for sale or for use as a component part of a product to be sold." [Emphasis added].
Based on the regulation and a review of the information provided, it is clear that the Taxpayer is not a harvester of forest products. The Taxpayer received wood inventory from the manufacturing company and sawed the logs into rough cut lumber; the Taxpayer was not engaged in severing forest products. Therefore, l cannot agree that the Taxpayer's equipment, supplies, and fuel qualify for the exemption provided under Code of Virginia § 58.1-609.2(6).
Fabrication
Title 23 of the Virginia Administrative Code (VAC) 10-210-560 defines fabrication as "[a]n operation which changes the form or state of tangible personal property . . . A person regularly engaged in the fabrication of tangible personal property for sale at retail must collect and pay the tax on the sales price of the property." Fabricators who are industrial manufacturers (fabricate principally or primarily for sale or resale) are entitled to the manufacturing exemption found in Code of Virginia § 58.1-609.3(2).
Based upon the information before me, l find that the Taxpayer is a fabricator, as defined in 23 VAC 10-210-560, for purposes of the contract between the Taxpayer and the manufacturing company. Furthermore, as the Taxpayer's operations are industrial in nature, it qualifies for the manufacturing exemption set forth under Code of Virginia § 58.1-609.3(2). Accordingly, the department's audit will be revised to remove those purchases that are used directly in the manufacturing process.
Summary
The audit will be returned to the ***** District Office for revisions in accordance with the determination in this letter. Once the revisions are completed, a revised bill will be issued. Payment should be made within 30 days of the date of the bill to avoid the accrual of additional interest. If you should have any questions, please contact ***** in the department's Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22132Q
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to ***** (the ATaxpayer"), for the period October 1995 through September 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a log yard and sawmill, and entered into a contract with a manufacturing company to operate its log yard and saw mill exclusively for the manufacturer. The contract provided that the manufacturer's logs would be cut by the Taxpayer for use by the manufacturer in its production operations. The department's auditor classified the Taxpayer as a "contract cutter," holding the Taxpayer liable for the tax on purchases of parts, supplies and fuel used in fulfilling the contract with the manufacturer.
The Taxpayer disagrees with the assessment and relies on Code of Virginia § 58.1--609.2, which allows an exemption for machinery, tools, repair parts and other property used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold. The Taxpayer also contends that the logs are materials for future processing or manufacturing into articles of tangible personal property for resale. The Taxpayer maintains that its purchases of parts and supplies are exempt from the tax under Code of Virginia § 58.1--609.3 because they are used directly in the manufacturing process.
DETERMINATION
Harvesting of Forest Products
Title 23 of the Virginia Administrative Code (VAC) 10-210-700 allows an exemption from the sales and use tax for "[a] harvester's purchase of machinery and tools and their repair parts, fuel, power, energy or supplies used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold....@ The term "harvesting of forest products" is defined to mean "the business of severing products from forests for sale or for use as a component part of a product to be sold." [Emphasis added].
Based on the regulation and a review of the information provided, it is clear that the Taxpayer is not a harvester of forest products. The Taxpayer received wood inventory from the manufacturing company and sawed the logs into rough cut lumber; the Taxpayer was not engaged in severing forest products. Therefore, l cannot agree that the Taxpayer's equipment, supplies, and fuel qualify for the exemption provided under Code of Virginia § 58.1-609.2(6).
Fabrication
Title 23 of the Virginia Administrative Code (VAC) 10-210-560 defines fabrication as "[a]n operation which changes the form or state of tangible personal property . . . A person regularly engaged in the fabrication of tangible personal property for sale at retail must collect and pay the tax on the sales price of the property." Fabricators who are industrial manufacturers (fabricate principally or primarily for sale or resale) are entitled to the manufacturing exemption found in Code of Virginia § 58.1-609.3(2).
Based upon the information before me, l find that the Taxpayer is a fabricator, as defined in 23 VAC 10-210-560, for purposes of the contract between the Taxpayer and the manufacturing company. Furthermore, as the Taxpayer's operations are industrial in nature, it qualifies for the manufacturing exemption set forth under Code of Virginia § 58.1-609.3(2). Accordingly, the department's audit will be revised to remove those purchases that are used directly in the manufacturing process.
Summary
The audit will be returned to the ***** District Office for revisions in accordance with the determination in this letter. Once the revisions are completed, a revised bill will be issued. Payment should be made within 30 days of the date of the bill to avoid the accrual of additional interest. If you should have any questions, please contact ***** in the department's Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22132Q
Rulings of the Tax Commissioner