Tax Type
Retail Sales and Use Tax
Description
Certain items do not qualify for the manufacturing exemption
Topic
Manufacturing Exemption
Date Issued
07-19-2007
July 19, 2007
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek a reconsideration of the Department's prior determination issued to ***** (the "Taxpayer") regarding the sales and use tax assessment issued for the period October 2001 through October 2004.
FACTS
In the Department's prior letter, it was determined that certain items used in the manufacturing facility did not qualify for the industrial manufacturing exemption. Based on the facts presented at that time, the Department determined that certain items did not qualify for the manufacturing exemption set out in Va. Code § 58.1-609.3 2.
The Taxpayer disagrees with the Department's position on the basis that the items are used directly in manufacturing as required under the manufacturing exemption. Department personnel toured the Taxpayer's plant to further determine the taxable status of the contested items.
DETERMINATION
Based on the provisions of Va. Code § 58.1-609.3 2 and the observations from the Department tour of the Taxpayer's plant, I will address the application of the retail sales and use tax to the CL207 Biocide Chemical and the McMaster Carr Ragger Winch.
CL207 Biocide Chemical
The CL207 biocide chemical is a chlorine-based cleaner that is used to prevent biological growth in the formers and to prevent biological growth on the final product. The chemical is continuously pumped through the formers, applying a layer of biocide chemical to the product.
The chemicals used to prevent biological growth in this case are analogous to the corrosion chemicals addressed in Public Document (P.D.) 85-208 (10/31/85). In that case, the corrosion chemicals used in an oil refinery were an indispensable part of the quality control of the manufacturing process and not subject to sales tax. In this case, the chemicals are used to prevent the formation of bacteria on the production machinery and to protect the integrity of the product. The CL207 Biocide Chemical actually becomes a part of the product and protects the integrity of the product. Accordingly, the CL207 Biocide Chemical qualifies for the manufacturing exemption, and will be removed from the assessment. This determination is consistent with P.D. 92-65 (5/11/92), P.D. 93-238 (12/21/93) and P.D. 02-62 (4/22/02), in which the Department ruled that chemicals used to protect the integrity of products by preventing the contamination of those products are deemed exempt from retail sales and use tax.
McMaster Carr Ragger Winch
The electric winch is used to support the filler pulper machine. The winch assists in removing bailing wire and other contaminants from the pulper machine when the self-contained remover cannot handle the amount of contaminants. The winch is separate from the pulper machine and is not used on a continuous basis.
Based on the information provided in your letter and during my staff's tour of the Taxpayer's plant, I cannot agree that the electric cable winch qualifies for the manufacturing exemption under Va. Code § 58.1-609.3 2. The winch is used intermittently to pull jammed materials from the pulper machine. The winch is not used directly in manufacturing and is properly included in the audit.
Imunol S6
The taxability of Imunol S6 was not raised as an issue in the Taxpayer's original appeal and was not addressed in the Department's prior determination. The Taxpayer may not raise this issue in a request for reconsideration.
CONCLUSION
Based on this determination, the CL207 Biocide Chemical will be removed from the assessment. The other contested transactions will remain in the assessment. An updated bill with interest accrued to date will be sent to the Taxpayer. No further interest will accrue provided the bill is paid within 30 days from the date of the undated bill.
The Code of Virginia section and public documents 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 website. If you have any questions about this determination, you may contact ***** at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1160261449.i
Rulings of the Tax Commissioner