Document Number
09-134
Tax Type
Retail Sales and Use Tax
Description
Boiler heats incoming water for use in the Taxpayer's laundry process; industrial processing exemption.
Topic
Exemptions
Tangible Personal Property
Date Issued
09-08-2009



September 8, 2009




Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period October 2004 through December 2007. I apologize for the delay in responding to your letter.

FACTS


The Taxpayer is an industrial processor of laundry. At issue is the tax assessed on the Taxpayer's purchase of a wastewater heat recovery system. The heat recovery system moves process wastewater through tubes (or plates) of the heat exchanger in a flow direction that is opposite the fresh water on the outside of the tubes in the shell. The shell and tube type heat exchanger reclaims heat from the hot wastewater to preheat incoming fresh water. The fresh water is then heated to a higher second temperature by a boiler for use in the processing equipment. The Taxpayer claims that the equipment is an integral part of its manufacturing process and is exempt: from the tax pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-920.

DETERMINATION

Virginia Code § 58.1-609.3 8 exempts from the retail sales and use tax:
    • Tangible personal property including machinery and tools, repair parts or replacements thereof, and supplies and materials used directly in maintaining and preparing textile products for rental or leasing by an industrial processor engaged in the commercial leasing or renting of laundered textile products.

Title 23 VAC 10 210 920 B 2 defines the term "used directly" as it relates to industrial manufacturing and processing as follows:
    • The term "used directly" refers to those activities that are an integral part of the production of a product, including all steps of an integrated manufacturing process, but not including incidental activities such as general maintenance, management, management, and administration.

The regulation further explains that an exemption is available for "subprocessing activities which produce tangible personal property used directly in the main manufacturing or processing activity."

In this instance, the boiler that heats incoming water for use in the Taxpayer's laundry process enjoys the industrial processing exemption. The heat recovery system serves the same purpose because it is used to preheat such water, which in turn is used directly in the processing equipment. In accordance with the above authorities, the heat recovery system is a subprocessing activity and qualifies for the exemption. Therefore, the purchase of the heat recovery system will be removed from the audit assessment. This is consistent with the Tax Commissioner's ruling in Public Document 97-20 (01/24/97).

CONCLUSION


The assessment represents the tax and interest assessed on the contested heat recovery system. Based on the above determination, the Department will abate the bill.

The Code of Virginia sections and regulation cited 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 about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,

                • Janie E. Bowen
                  Tax Commissioner



AR/1-2416189934.T

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46