Tax Type
Retail Sales and Use Tax
Description
Retail Sales and Use Tax Treatment of the Fabrication of Foodstuffs
Topic
New Procedure(s)
Tangible Personal Property
Taxable Transactions
Date Issued
06-09-2009
TAX BULLETIN 09-7
Virginia Department of Taxation
June 9, 2009
IMPORTANT INFORMATION REGARDING
THE RETAIL SALES AND USE TAX TREATMENT OF
CHARGES FOR THE FABRICATION OF FOODSTUFFS
Effective July 1, 2009, legislation enacted in the 2009 Session of the General Assembly, House Bill 2360 and Senate Bill 944 (2009 Acts of Assembly, Chapters 36 and 832), changes the Retail Sales and Use Tax treatment of charges for the fabrication of meats, grains, fruits, vegetables and other foodstuffs.
Current Law With Respect to the Fabrication of Foodstuffs
Under current statutory law, fabrication labor is subject to the Retail Sales and Use Tax under Va. Code § 58.1-602, which provides that a sale subject to the tax includes “the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication.”
TAX’s regulation section concerning fabrication, 23 Virginia Administrative Code (VAC) 10-210-560, in pertinent part, explains that
-
- An operation which changes the form or state of tangible personal property is fabrication. . . A person regularly engaged in the fabrication of tangible personal property for sale at retail must collect and pay the tax on the sales price of the property. . . The tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work. For example, a tailor who makes an article of wearing apparel from materials furnished by the customer must collect and pay the tax on the charge for making the apparel.
Charges for the fabrication of meats, grains, fruits, vegetables and other foodstuffs are subject to tax even though a person engaged in agricultural production for market may purchase livestock and livestock products, poultry and poultry products, and farm and agricultural products exempt from the Retail Sales and Use Tax under Va. Code § 58.1-609.2 (3) when used or consumed by him and the members of his family.
The Retail Sales and Use Tax, however, is not applicable to situations where butchers, slaughterhouses and other processors of agricultural products fabricate meat or other agricultural products that will be resold as such transactions qualify for the “sale for resale” exemption.
New Law
Effective July 1, 2009, Va. Code § 58.1-609.10 has been amended to provide that the Retail Sales and Use Tax will not apply to the fabrication of animal meat, grains, vegetables, or other foodstuffs when the purchaser i) supplies the foodstuffs and they are consumed by the purchaser or his family, or ii) is an organization exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code, or iii) donates the foodstuffs to an organization exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code.
Due to this law change, on and after July 1, 2009, 23 VAC 10-210-560 will no longer be applicable to charges for the fabrication of foodstuffs that qualify for this new exemption. The regulation will be revised to address the legislation.
This law change does not affect situations where butchers, slaughterhouses and other processors of agricultural products process meat or other agricultural products that will be resold. Such transactions will continue to qualify for the “sale for resale” exemption.
TAX will issue a new exemption certificate, Form ST-24, for exempt charges for the fabrication of foodstuffs, which will be available for download at TAX's website at www.tax.virginia.gov. Charges for the fabrication of foodstuffs are subject to tax unless the fabricator receives a properly executed Retail Sales and Use Tax exemption certificate from the purchaser. Purchasers qualifying for the new exemption must present Form ST-24 for exempt transactions for fabrication of foodstuffs. Purchasers qualifying for the “sale for resale” exemption may present Form ST-24, or the resale exemption certificate, Form ST-10.
Examples
Example 1:
A hunter pays a butcher to butcher a deer carcass for consumption by him and his family. The butchering of the carcass is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.
Example 2:
A hunter pays a butcher to butcher a deer carcass that he will donate to an organization exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code. The butchering of the carcass is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.
Example 3:
A hunter donates a deer carcass to an organization that is exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code. The organization pays a butcher to butcher the deer carcass. The butchering of the carcass is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.
Example 4:
A farmer and her family consume bread made by her from grain that she has grown and milled into flour herself. Regardless of the date, these activities are exempt from the Retail Sales and Use Tax under the agricultural exemption provided by Va. Code § 58.1-609.2 (3).
Example 5:
The owner of an orchard pays a processing facility to can peaches from the orchard for consumption by the orchard owner and his family. The canning of the peaches is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.
Example 6:
On a regular basis, a cattleman pays a processing facility to slaughter and butcher cattle in preparation for the sale of the meat by the cattleman to members of the general public at retail. The slaughter and butchering of the cattle is fabrication. Regardless of the date of the fabrication, it is not subject to the Retail Sales and Use Tax as it qualifies for the “sale for resale” exemption. The eventual sale of the meat by the cattleman to members of the general public will be subject to the tax.
Example 7:
On a regular basis, a cattleman pays a processing facility to slaughter and butcher cattle in preparation for the sale of the meat by the cattleman to a grocery chain for sale to the general public at retail. The slaughter and butchering of the cattle is fabrication. Regardless of the date of the fabrication, it is not subject to the Retail Sales and Use Tax as it qualifies for the “sale for resale” exemption. The eventual sale of the meat by the grocery chain to members of the general public will be subject to the tax.
If you have any questions regarding this Tax Bulletin, please contact TAX at: (804) 367-8037.
Rulings of the Tax Commissioner