Tax Type
Retail Sales and Use Tax
Description
Welding; Fabrication vs. repair; Statute of limitations
Topic
Collection of Delinquent Tax
Taxability of Persons and Transactions
Date Issued
04-21-2000
April 21, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to your client **** (the "Taxpayer"), for the period of August 1994 through April 1997. I apologize for the delay in responding to your appeal.
The Taxpayer is in the business of welding repair and fabrication. Based on information furnished by the Taxpayer to the auditor, the Taxpayer was primarily engaged in the repair business during the audit period. While it is acknowledged that the Taxpayer fabricated and sold some equipment during the audit period, the Taxpayer was primarily in the business of repair, and was audited as a repair business. The Taxpayer is taking exception and believes that it is an industrial manufacturer and should enjoy the industrial manufacturing exemption on equipment used in its operation.
Fabrication vs. repair
Title 23 of the Virginia Administrative Code (VAC) 10-210-560, copy enclosed, addresses fabrication and provides the following:
Looking to VAC 10-210-3050, copy enclosed, this regulation provides that persons engaged in the repair of tangible personal property are required to register and to collect and pay the tax on sales. This regulation goes on to provide "the tax must be paid on equipment, tools and all other tangible personal property used in performing the repair work."
In order to determine if a fabricator is an industrial manufacturer or a repair business, the department looks to the "primary purpose rule" to determine how the Taxpayer should be operating. As noted above, the Taxpayer reviewed its records for the audit period in question and determined that it was primarily engaged in the business of repair. Therefore, the Taxpayer was audited as a repair business and held taxable on purchases of tangible personal property used in performing the repair work, in accordance with VAC 10-210-3050.
Statute of Limitations
It was noted during the review of the audit and related assessment, that the auditor originally assessed the audit liability on September 19, 1997, in order to meet the deadline under the Waiver of Time Limitation on Assessment of Taxes signed by the department and the Taxpayer. When the auditor and the Taxpayer had completed their review of the audit findings in July 1998, the auditor abated the original assessment in full and re-assessed the correct audit liability.
Code of Virginia § 58.1-634 provides that the sales and use taxes "shall be assessed within three years for the date on which such taxes became due and payable." Since the original assessment was abated and the correct assessment was not issued until July 30,1998, the period of the audit from August 1994 through June 1995 was assessed outside the three-year statute of limitations. These months will be removed from the audit findings, and a revised notice of assessment will be issued. The revised assessment must be paid within 30 days of receipt to avoid the accrual of additional interest.
It is noted in your letter that you would desire a conference should the department rule adversely. If you would like to meet, or if you should have any questions, please call ***, Office of Tax Policy, at ***.
Sincerely,
Danny M. Payne
Tax Commissioner
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to your client **** (the "Taxpayer"), for the period of August 1994 through April 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the business of welding repair and fabrication. Based on information furnished by the Taxpayer to the auditor, the Taxpayer was primarily engaged in the repair business during the audit period. While it is acknowledged that the Taxpayer fabricated and sold some equipment during the audit period, the Taxpayer was primarily in the business of repair, and was audited as a repair business. The Taxpayer is taking exception and believes that it is an industrial manufacturer and should enjoy the industrial manufacturing exemption on equipment used in its operation.
DETERMINATION
Fabrication vs. repair
Title 23 of the Virginia Administrative Code (VAC) 10-210-560, copy enclosed, addresses fabrication and provides the following:
-
- An operation which changes the form or state of tangible personal property is fabrication. Fabrication is distinguished from repair which is an operation that restores a used or worn piece of tangible personal property. Charges for repair are governed by 23 VAC 10-210-3050.
Looking to VAC 10-210-3050, copy enclosed, this regulation provides that persons engaged in the repair of tangible personal property are required to register and to collect and pay the tax on sales. This regulation goes on to provide "the tax must be paid on equipment, tools and all other tangible personal property used in performing the repair work."
In order to determine if a fabricator is an industrial manufacturer or a repair business, the department looks to the "primary purpose rule" to determine how the Taxpayer should be operating. As noted above, the Taxpayer reviewed its records for the audit period in question and determined that it was primarily engaged in the business of repair. Therefore, the Taxpayer was audited as a repair business and held taxable on purchases of tangible personal property used in performing the repair work, in accordance with VAC 10-210-3050.
Statute of Limitations
It was noted during the review of the audit and related assessment, that the auditor originally assessed the audit liability on September 19, 1997, in order to meet the deadline under the Waiver of Time Limitation on Assessment of Taxes signed by the department and the Taxpayer. When the auditor and the Taxpayer had completed their review of the audit findings in July 1998, the auditor abated the original assessment in full and re-assessed the correct audit liability.
Code of Virginia § 58.1-634 provides that the sales and use taxes "shall be assessed within three years for the date on which such taxes became due and payable." Since the original assessment was abated and the correct assessment was not issued until July 30,1998, the period of the audit from August 1994 through June 1995 was assessed outside the three-year statute of limitations. These months will be removed from the audit findings, and a revised notice of assessment will be issued. The revised assessment must be paid within 30 days of receipt to avoid the accrual of additional interest.
It is noted in your letter that you would desire a conference should the department rule adversely. If you would like to meet, or if you should have any questions, please call ***, Office of Tax Policy, at ***.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner