Document Number
10-84
Tax Type
Retail Sales and Use Tax
Description
Taxpayer assessed use tax on asset and expense purchases
Topic
Property Subject to Tax
Records/Returns/Payments
Date Issued
06-04-2010


June 4, 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"), in which you seek correction of the retail sales and use tax assessment issued as a result of the Department's audit for the period January 2006 through December 2008. I apologize for the delay in the Department's response.

FACTS


The Taxpayer, is a manufacturer of aluminum oxygen cylinders. Both the administrative and manufacturing facilities are located in Virginia. The Taxpayer was assessed use tax on asset and expense purchases. Assets were reviewed in detail for the audit period using Taxpayer's federal returns and purchase invoices. Expense purchases were sampled using the Taxpayer's transaction-by-vendor list, general ledger and purchase invoices. The Taxpayer protests the tax assessed on certain expense and asset purchases.

DETERMINATION


Pursuant to Va. Code § 58.1-205, any assessment made by the Department is assumed to be prima facie correct with the burden resting with the taxpayer to prove otherwise. In this case, the Taxpayer did not provide any documentation to support its protest with the original appeal application. Additional documentation has been requested but has not been received as of this date.

Because the Taxpayer has not provided supporting evidence of the asserted claims of exemption, the determinations that follow are based on the available
information.

Epicor Computer Program and Laser Checks

The Taxpayer represents that these products were neither received nor used by the Taxpayer. However, the auditor's review of the purchase invoices indicated the acquisition of these items with no subsequent return. As such, these items will remain in the audit.

Additional Purchases

The following purchases will also be held taxable because no purchase invoices or evidence of the claimed exempt use in the manufacturing process has been presented: repair kit, cylinder, starter, tank rental, drill repair, petroleum products and office safety supplies.

The remaining purchases will be addressed in accordance with Va. Code § 58.1­609.3 2 and Title 23 of the Virginia Administrative Code (VAC) 10-210-920:

Forklift

The Taxpayer asserts that: this equipment is used only in the manufacturing process; however, the auditor observed the forklift being used more than 80% of the time to remove waste products outside of the building. Title 23 VAC 10-210-920 states:
    • When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and the other of which is not (taxable), the sales and use tax shall apply in full when the preponderance of evidence of the item's use fifty percent or more) is in the non-exempt activity.

Title 23 VAC 10-210-920 classifies as taxable any piece of tangible personal property used to remove plant waste and pollutants. The Taxpayer has offered no evidence to contradict the auditor's finding regarding this asset's primary use. Therefore, this purchase will be held as taxable.

Cleaners, Lubricants and Coolants

The Taxpayer describes these products as being used to clean and lubricate machinery and tools used in the production process. Title 23 VAC 10-210-920 states the tax applies to tangible personal property used in the servicing and maintenance of production machinery. Therefore, these products will remain in the audit.

Conclusion

Based on the foregoing, no adjustment to the assessment is warranted. An updated bill, with the interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges.

The Code of Virginia and regulation sections 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 *****.
                • Sincerely,


                • Janie E. Bowen
                  Tax Commissioner



AR/1-350005360.M


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46