09-159 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Taxpayer claims tire retreaders are deemed to be industrial processors and exemptible

Topic

Appropriateness of Audit Methodology

Exemptions

Records/Returns/Payments

Date Issued

10-16-2009

October 16, 2009

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

Dear *****:

This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period July 2001 through June 2007. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is engaged in the sale of new and used tire retreading equipment and related parts and supplies. The Taxpayer was audited by the Department and assessed tax and interest on the sale of equipment and related parts for which the Taxpayer did not have valid exemption certificates on file from its customers. In addition, the auditor denied the exemption on sales to customers if more than 50% of the sales for the business were not in retreading. The Taxpayer claims that tire retreaders are deemed to be industrial processors and are eligible for the exemption set forth in Title 23 of the Virginia Administrative Code (VAC) 10-210-5050 and Title 23 VAC 10-210-920.

DETERMINATION

Tire Retreading Equipment

Virginia Code § 58.1-609.3 2 (iii) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or converting products for sale or resale." This exemption is interpreted by Title 23 VAC 10-210-920 A to apply to the types of tangible personal property listed when used or consumed by industrial manufacturers and processors. To qualify for exemption, a business must be an industrial manufacturer or processor.

Title 23 VAC 10-210-5050 (repealed effective 3/10/07)¹ provides that "[p]ersons engaged in tire recapping or retreading are deemed to be industrial processors and are eligible for the exemption set forth in 23 VAC 10-210-920."

Existing Departmental policy does not require a taxpayer's business to be primarily in tire recapping and retreading in order to enjoy the industrial processing exemption on the purchase of such equipment. Accordingly, the contested sales in which the exemption was denied because the customer's business was not primarily retreading tires will be removed from the audit.

Exemption Certificates

Title 23 VAC Code 10-210-280 A provides:

- All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. The certificate will remain in effect except upon notice from the Department of Taxation that it is no longer acceptable. However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.

The Taxpayer was allowed to obtain copies of exemption certificates from its customers during the audit for consideration by the Department. The Taxpayer's customers have provided the Taxpayer with a Form ST-11 indicating that sales to these customers are exempt under the exemption for tangible personal property used directly in manufacturing, processing, refining, mining or converting products for sale or resale. The Department's review of the exemption certificates and the entities that used them indicates that the certificates are valid. Accordingly, these sales will be removed from the audit.

The auditor assessed the tax on the sale of retread equipment to a trucking company. In this instance, the Taxpayer did not have on file a certificate of exemption indicating the sale qualified for exemption from the tax. Further, according to the audit comments, the trucking company purchased the equipment for use in retreading and recapping tires for their own use and not for sale or resale. The above statute limits the exemption to those businesses engaged in the processing, manufacturing, refining, mining or converting products for sale or resale. Thus, the trucking company does not qualify for the industrial processing exemption. Therefore, I find no basis to remove the sale to this customer from the audit.

CONCLUSION

Based on the foregoing, the audit will be returned to the audit staff to adjust the assessment as noted above. After the auditor makes the appropriate adjustments, the Taxpayer will receive a revised bill with interest accrued to date. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of the bill.

The Code of Virginia section and regulations 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 response, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/1-2312119772.T

1.Title 23 VAC 10-210-5050 was repealed because it was identified as a regulation that addresses a statute that is clear and unambiguous and because it provides no additional guidance. Repeal of this regulation does not reflect a change in existing Departmental policy.

Rulings of the Tax Commissioner