Tax Type
Retail Sales and Use Tax
Description
Mineral Processing; Component part exemptions
Topic
Manufacturing Exemption
Date Issued
06-13-2001
June 13, 2001
Re: § 58.1-1821 Application Reconsideration Request: Retail Sales and Use Tax
Dear *****
This will reply to your letter in which you request reconsideration of the department's determination of August 30, 1999, copy enclosed, regarding a retail sales and use tax audit appeal filed by ******* (the "Taxpayer") for the audit period of December 1994 through January 1998. I apologize for the delay in responding to your request.
The item at issue is structural steel used in the Taxpayer's stone crushing operation, which includes a rock box, stone crusher, control house, conveyors, and various other equipment common to a rock quarrying operation. The August 30, 1999 determination upholding the assessment of tax on the structural steel is based on the statutory "used directly" standard found in the manufacturing and processing exemption afforded under Code of Virginia § 58.1-609.3(2) and defined in Code of Virginia § 58.1-602. The department's position is also supported under Title 23 of the Virginia Administrative Code (VAC) 10-210-920(B)(2). You request reconsideration of this determination based on VAC 10-210-960(A)(3)(f), which addresses the sales and use tax exemption as it applies to mineral processing.
Title 23 VAC 10-210-960(A)(3)(f) addresses the manufacturing and processing exemption as it pertains to mineral processing and provides, in part, that "steel and similar supports which are a component part of exempt processing equipment or machinery and which do not become permanently affixed to realty are not subject to tax." [Emphasis added.] In the present situation, it must be determined whether or not the structural steel in question is actually a component part of exempt machinery or merely provides the support for a gravity-fed stone crusher.
It has been the longstanding policy of the department that structural steel, special flooring, and similar structural materials do not meet the direct usage test. This issue was addressed by the Virginia Supreme Court in Webster Brick v. Commonwealth, 219 Va. 81, 145 S.E.2d 252(1978) and Commonwealth v. Wellmore Coal, 228 Va. 149 (1984). In Public Document (P.D.) 91-183 (8/26/91), copy enclosed, the department determined that in order for structural steel to be considered a "component part" of exempt machinery and, therefore, exempt from the tax, such steel must be connected to the machinery and used for the sole purpose of supporting exempt machinery. Based on a review of the photographs furnished with the audit, we are unable to determine what portion of the structural steel at issue is used solely for the purpose of supporting exempt equipment, and what portion may serve other functions, i.e., worker access, stairwell support, etc.
Based on all of the above, I am returning the audit to the ***** District Office for further review and possible revision. I will agree to remove any structural steel that is a component part of exempt equipment and is used solely for the purpose of supporting such equipment.
If you should have any questions concerning this determination, please contact Office of Tax Policy, at *******
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/25223K
COMMONWEALTH of VIRGINIA
Department of Taxation
Department of Taxation
TO WHOM IT MAY CONCERN
Under the authority of Section 58.1-1 of the Code of Virginia, I hereby delegate to Janie E. Bowen, Assistant Tax Commissioner, the authority to sign for me any and all documents, including, but not limited to, affidavits, warrants, rulings, appeals, offers in compromise and sales tax revocations.
This authority shall not extend to matters or documents related to my service on any statutorily created board or commission, including, but not limited to, the Compensation Board and the Treasury Board.
This authority will continue until revoked. The delegation of authority dated June 3, 1994, is hereby revoked and replaced.
Done at Richmond, Virginia this tenth day of September, 1999.
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner