Tax Type
Retail Sales and Use Tax
Description
Electrical contractor.
Topic
Appropriateness of Audit Methodology
Date Issued
12-11-2002
December 11, 2002
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter requesting correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is an electrical contractor. An audit for the period January 1999 through November 2001 resulted in the assessment of tax on sales and purchases of tangible personal property.
The Taxpayer contests the tax assessed on purchases of cable trays installed in a manufacturing facility. The Taxpayer maintains that the cable trays are a component part of wiring for production and are exempt pursuant to Va. Code § 58.1-609.3(2).
The Taxpayer indicates that the cable trays are required by the National Electrical Code for the protection of all open ungrounded conductors. In addition, the cable trays serve as approved equipment-grounding conductors in this installation.
The Taxpayer requests that the Department reconsider its position as set out in Public Document (P.D.) 86-98 (5/22/86) regarding the taxation of cable trays. In this regard, you suggest the cable trays serve the same function as an electrical conduit by following the conductors from the power supply to production machinery.
DETERMINATION
As you correctly note, the Department's long-standing policy on cable trays is set out in P.D. 86-98 as follows:
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- With respect to pipe hangers, cable trays, and other forms of supports, [the manufacturing regulation] provides that "[m]aterials and apparatus used to support production machinery (are taxable) . . . except supports or legs which are a component part of exempt production machinery and do not become affixed to realty.
That public document went on to conclude that "cable trays are deemed to be used indirectly in production and taxable as they are not part of the electrical wiring or conduit. Rather, wiring or conduit merely rest on the trays."
Furthermore, the manufacturing regulation as set out in Title 23 of the Virginia Administrative Code 10-210-920(B)(2) provides the following:
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- Convenient or facilitative items, such as fuel storage tanks, platforms, structural steel, grating, equipment supports, special flooring, etc., or items which are essential to the operation of a business but not an immediate part of actual production, are not used directly in manufacturing or processing even though such items may be directly attached to exempt production machinery. Furthermore, the fact that the use of a particular item, such as firefighting and safety equipment, may be required by federal, state or local law is not, by itself, dispositive of direct usage in manufacturing or processing.
The pictures provided with your correspondence of the customer's facility reveal that the cable trays at issue are either the ladder type or solid design and are used to support, hold and route electrical wiring. Solid bottom cable trays would appear to provide some safety protection. However, none of the pictures or facts presented lead me to conclude that the cable trays constitute a component part of the exempt wiring. Although the cable trays are essential to suspend, channel, and protect wiring and serve as approved equipment-grounding conductors, I find that their use is a step removed from direct use in exempt production.
Conclusion
Based on this determination, the assessment is correct. A consolidated bill, with interest accrued to date, will be mailed to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 45 days from the date of this letter.
The Code of Virginia sections, regulations and public documents cited are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this determination, you may contact ******** in the Department's Office of Policy and Administration, Appeals and Rulings, at ********************.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/39456R
Rulings of the Tax Commissioner