Tax Type
Retail Sales and Use Tax
Description
Manufacturing; Medical diagnostic test kits
Topic
Taxability of Persons and Transactions
Date Issued
07-31-2000
July 31, 2000
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you request a ruling as to the retail sales and use tax application to your client's (the "Taxpayer") operation. I apologize for the delay in replying to your request.
FACTS
The Taxpayer manufactures in vitro diagnostic test kits which are used by hospitals and clinical laboratories to test various human conditions. The Taxpayer facility includes a pre-production room, a production room, and a quality control laboratory. The Taxpayer manufactures ten different in vitro test kits. The Taxpayer's process entails the mixing of various raw materials, or fluids, used in administering the test, quality control checks, sanitizing, sterilization, assembly, packaging, and quarantine storage. The Taxpayer believes it qualifies as an industrial manufacturer and enjoys the exemption afforded to manufacturers under Code of Virginia § 58.1-609.3(2) and Title 23 of the Virginia Administrative Code (VAC) 10-210-920, copies enclosed.
DETERMINATION
Code of Virginia § 58.1-609.3(2) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacement thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining, or converting products for sale or resale . . . ." The Virginia Supreme Court, in Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973), determined that the exemption cited above applied to establishments manufacturing in the industrial sense only. Code of Virginia § 58.1-602 provides, in part, that the term "industrial in nature" includes, but is not limited to, "those businesses classified in codes 10 through 14 and 20 through 39 published in the Standard Industrial Classification Manual for 1972 and any supplements issued thereafter."
A review of the Standard Industrial Classification (SIC) Manual codes for manufacturers reveals that the Taxpayer would be classified in SIC code sub-group 2835 if it meets the criteria for this sub-group. Establishments included in sub-group 2835 are "establishments primarily engaged in manufacturing in vitro and in vivo diagnostic substances, whether or not packaged for retail sale. These materials are chemical, biological, or radioactive substances used in diagnosing or monitoring the state of human . . . health by identifying and measuring normal or abnormal constituents of body fluids or tissues."
In the present case, the Taxpayer mixes and blends various raw materials, i.e., chemicals, to obtain component parts to be included in in vitro diagnostic test kits. In Commonwealth of Virginia, Department of Taxation v. Orange-Madison Cooperative Farm Service, 220 Va. 655, 261 S.E.2d 532 (1980), the Virginia Supreme Court held that the mixing or blending of fertilizer which would render the product more marketable would qualify as industrial processing, regardless of the fact that such product may be sold at retail. Based on the Virginia Supreme Court's opinion and the SIC Manual information relating to sub-group 2835, I find that the Taxpayer's process of mixing in vitro solution for sale to hospitals and laboratories qualifies as industrial processing.
Title VAC 10-210-920.C.2 addresses the production process of a manufacturer and provides that "production includes the production line of the plant starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where the product is finished or completed for sale and conveyed to a warehouse at the production site." This being the case, I find that the Taxpayer is entitled to the industrial processing exemption for all machinery and equipment used directly in assembling the in vitro diagnostic test kits. All component parts of the test kits may be purchased tax exempt under a Form ST-10, Resale Exemption Certificate. This position is supported in Public Document 87-154 (6/2/87), copy enclosed.
If you should have any questions concerning the direct use of items used by the Taxpayer, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/20344K
Related Documents
Rulings of the Tax Commissioner