Tax Type
Retail Sales and Use Tax
Description
Manufacturer of prototype cellular phones and printed circuit boards
Topic
Manufacturing Exemption
Date Issued
05-29-2008
May 29, 2008
Re: § 58.1-1821 Reconsideration: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a reconsideration of the prior determination issued to the Taxpayer, regarding the sales and use tax assessment issued for the period May 2001 through January 2002. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer maintains that the production of prototype cellular phones and printed circuit boards for its customer does not represent preproduction activities as concluded in the prior determination. Relying on Title 23 of the Virginia Administrative Code (VAC) 10-210-920, the Taxpayer contends that the manufacturing exemption applies to the production of the prototypes because a tangible personal product was produced for sale or resale, and because the production process was industrial in nature. The Taxpayer states that the ***** facility (where the prototypes are produced) and the ***** facility (where the mass production of the final product is completed) are separate legal entities. The Taxpayer contends that the customer contracted with the Taxpayer for the production of the prototypes and that the prototypes were the final product presented to the customer. The Taxpayer provides a copy of the Specific Supply Agreement (the "SSA") entered into with its customer.
DETERMINATION
Title 23 VAC 10-210-920 A provides, in pertinent part, that "for a business to obtain the [manufacturing] exemption, it first must be manufacturing or processing products for sale or resale and secondly, such production must be industrial in nature."
Based upon the facts presented in the Taxpayer's request for reconsideration, the manufacturing of the prototype cellular phones and the printed circuit boards meets the test to qualify for the manufacturing exemption. The additional evidence presented demonstrates that the prototypes were manufactured by the Taxpayer for sale to its customer and the process was industrial in nature. The facts also more clearly demonstrate that during the audit period the Taxpayer manufactured prototypes in a separate location from where final production of prototypes was conducted. Accordingly, the transactions related to the manufacturing of these products will be removed from the audit.
The audit will be returned to the audit staff to make the adjustments to the audit as required by this determination. An updated bill, with interest accrued to date, will be mailed to the Taxpayer once the audit adjustments are complete. No additional interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. The Taxpayer should remit its payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The regulation cited is 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 about this
determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Janie E. Bowen
Tax Commissioner
AR/55418P
Rulings of the Tax Commissioner