Tax Type
Retail Sales and Use Tax
Description
Use tax on purchase of carbon used in cigarette manufacturing business
Topic
Assessment
Exemptions
Date Issued
08-23-2006
August 23, 2006
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek the correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period January 2002 through September 2003. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a cigarette manufacturer that was audited by the Department. The Taxpayer is appealing an assessment of use tax on its purchase of carbon used in its cigarette manufacturing business. The carbon is used in tobacco storage sheds to protect tobacco leaf from insects. The tobacco leaf is aged for a minimum of two years in the storage sheds. The Taxpayer maintains that the aging of the tobacco in the storage sheds is industrial processing, and the carbon is used directly in industrial processing. Thus, the carbon qualifies for exemption from the sales and use tax.
Prior to the filing of this appeal, representatives of the Department met with the Taxpayer and discussed the application of the industrial processing exemption to the storage and aging of tobacco leaf at the Taxpayer's Virginia facility. The Taxpayer provided additional documentation to the Department to support its claim that the aging of tobacco qualifies for the industrial processing exemption.
DETERMINATION
Industrial Processing Exemption
The Department addressed the Taxpayer's aging of tobacco in Public Document (P.D.) 04-87 (8/30/04), which states that the storage and aging of tobacco in the Taxpayer's storage sheds is not industrial processing and that the warehouse is not a plant site for purposes of the manufacturing and processing exemption. The Department has reconsidered its position on this matter, and in a recent letter to the Taxpayer, upheld the original determination.
Based on the Department's determination that the Taxpayer's storage and aging of tobacco is not industrial processing, the carbon is not used directly in industrial processing and does not qualify for this exemption. While I recognize that the carbon may be essential to the Taxpayer's cigarette manufacturing business, the same logic applies to the use of the carbon that applies to the Tersa Bale Heads previously held taxable by the Department.
CONCLUSION
Based on the determination above, the audit assessment is correct. The Taxpayer will receive an updated bill that will include accrued interest. No additional interest will accrue provided the Taxpayer makes payment within 30 days of the date on the bill.
The public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions or wish to discuss the information in this letter, please contact ***** in the Office of Policy and Administration, Appeals and Rulings at *****.
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- Sincerely,
Janie E. Bowen
Tax Commissioner
- Sincerely,
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AR/55801S
Rulings of the Tax Commissioner