Tax Type
Retail Sales and Use Tax
Description
Transportation devices
Topic
Accounting Periods and Methods
Appropriateness of Audit Methodology
Date Issued
10-06-2002
October 6, 2002
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period March 1994 through January 2000. I apologize for the delay in the department's response.
FACTS
The Taxpayer manufactures fiber reinforced structural parts and polymer concrete products. The only contested issue is the Taxpayer's purchase of air bags used to protect products during transit. The Taxpayer contends that the air bags are exempt under Code of Virginia § 58.1-609.3(2)(iv) and should be removed from the department's audit.
The Taxpayer's products are banded or strapped together in bundles and then loaded into trailers or railcars for shipment. You maintain that the air bags are contained within the strapping materials in the shipment "package" and effectively restrain the movement of the product in more than one plane. However, the audit staff indicates that the air bags are used between the bundles within the truck or railcar load to provide a cushioned barrier of protection.
DETERMINATION
Code of Virginia § 58.1-609.3(2)(iv) provides an exemption for industrial manufacturers for "materials, containers, labels, sacks, cans, boxes, drums or bags for future use for packaging tangible personal property for shipment or sale ...." This exemption is addressed in Title 23 of the Virginia Administrative Code (VAC) 10-210-400. The regulation distinguishes between "packaging materials" (which are generally exempt when purchased by industrial manufacturers) and taxable "transportation devices" and indicates that:
-
- "Packaging materials" means items which are used to package products for sale .... Examples of such items are containers, labels, sacks, cans, boxes; drums, and other similar items.
"Transportation devices" means items which are used to transport and protect products for sale and to restrain movement in a single plane of direction. Examples of such items are pallets, dunnage, strapping and similar materials used to brace or secure cargo for transport.
As set out in 23 VAC 10-210-540, exemptions from the sales and use tax are strictly construed. When language is susceptible to two constructions, the construction denying the exemption will be followed. Based on the information provided, the airbags at issue in this case are more comparable to taxable "transportation devices" than to exempt packaging. Under the doctrine of strict construction of sales and use tax exemptions, the air bags are not used in packaging the Taxpayer's product, as they are not "packaging materials" as defined above. Consequently, the assessment of the air bags is correct.
If you should have any questions regarding this matter, please contact ***** of the department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/35502Q
Rulings of the Tax Commissioner