Tax Type
Retail Sales and Use Tax
Description
Maintenance contract exempt machinery used directly in the manufacturing process
Topic
Manufacturing Exemption
Records/Returns/Payments
Date Issued
07-12-2010
July 12, 2010
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter written on behalf of ***** (the "Taxpayer") requesting correction of the retail sales and use tax assessment issued for the period of October 2005 through September 2008. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a manufacturer of semi-conductor manufacturing equipment. The Taxpayer also sells repair parts and services. As a result of the Department's audit, the auditor disallowed a single exempt sale for which the Taxpayer did not have a valid exemption certificate in its possession. The sale was for a maintenance contract that included both repair parts and labor for the servicing of machinery used directly in the manufacturing process. The Taxpayer disagrees with the assessment of tax and has presented an updated certificate of exemption to support the exempt status of the sale at issue.
DETERMINATION
Title 23 of the Virginia Administrative Code 10-210-280 B states:
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- 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 . . . . However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable.
Public Document 95-310 (12/08/95) states that certificates of exemption obtained during or after an audit situation will be accepted only if the Department can confirm that the customer's use of the certificate was valid and proper for the specific transaction. The certificate of exemption presented by the Taxpayer is not valid for the transaction at issue because it is dated after the contract sale date.
However, Public Document 95-247 (9/27/95) specifically exempts the sale of parts and labor maintenance contracts for manufacturing machinery from the retail sales and use tax. The Department has confirmed that the maintenance contract at issue is for exempt machinery used directly in the manufacturing process. Therefore, the sale of the contract is exempt and will be removed from the audit assessment.
The public documents cited 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 ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Linda Foster
Deputy Tax Commissioner
- Linda Foster
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AR/1-3673865219.M
Rulings of the Tax Commissioner