Tax Type
Retail Sales and Use Tax
Description
Restaurant; Plant site concept; Industrial exemption
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
10-25-1984
- October 25, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear *****
This will reply to your letter of February 8, 1984, in which you submit a request for the reconsideration of my determination of December 6, 1983 in the above referenced matter.
You assert that ***** processing activities are exempt from the sales and use tax starting at its central commissary location, continuing through food preparation at its retail outlets, and finally ending upon the delivery of cooked pizzas to customers. I have reviewed my determination of December 6, 1983 in light of your most recent comments but continue to find no statutory basis whatsoever for the relief of sales and use tax assessed to ***** on processing operations carried on outside its commissary facility.
§§ 58-441.3(p) and (q) of the Code of Virginia are clear and unambiguous, setting forth an intention on the part of the General Assembly to place certain constraints on the industrial exemption set forth in Virginia Code § 58-441.6.
Virginia Code § 58-441.3(p) sets forth the boundaries of the industrial exemption, i.e. activities conducted on "the production line of the plant starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where the product is finished or completed for sale and conveyed to a ware-house at the production site" (emphasis added). Since the word "includes" precedes the description above of the boundaries of the exemption in a manufacturing or processing environment, you assert that the statute does not necessarily impose a single production site constraint on the industrial exemption. We disagree. Had the General Assembly not wished to limit the industrial exemption to activities conducted at a single plant site, it would not have placed references to the plant or production site in Virginia Code § 58-441.3(p). As noted in my previous determination, the department's policy regarding the plant site concept has been upheld by the Circuit Courts for the City of Charlottesville and the County of Buchanan in cases involving the manufacturing and mining exemptions respectively.
We find in the instant case that ***** operates two separate and distinct processing operations which are conducted at various different sites. While various items used directly in an integrated production process, per Virginia Code § 58-441.6(q), are exempt from the tax, we cannot deem ***** entire processing operation to constitute a single integrated process inasmuch as such operation is not limited to a single plant site.
While Virginia Code § 58-441.6(p) has been amended, effective July 1, 1984, to expand the definition of industrial manufacturers, processors, etc., it must be noted that this amendment does not impact the plant site concept still contained within the statute.
The amendment noted above provides that the determination whether a manufacturer, processor, etc. is engaged in industrial production may be based upon the classification of such business under the Standard Industrial Classification Manual. Businesses listed in Codes 10-14 and 20-39 of the Manual are deemed to be industrial in nature per the statute. Since the activities carried out in ***** central commissary location were deemed to fall under such classification, the industrial exemption is deemed to be applicable.
While we agree that businesses not listed in the codes noted above are not absolutely precluded from claiming the industrial exemption, we find such SIC Manual classifications to be most persuasive with respect to ****retail operations. The outlets in question are classified under the retail trades within the SIC Manual along with department stores, food stores, etc.
The SIC Manual notes in its description of the retail trade that an "establishment may process its products, but such processing is incidental or subordinate to selling." As you know, this is identical to the reasoning of the Virginia Supreme Court, which held in Common-wealth v. Orange-Madison Cooperative Farm Service, 220 Va. 655, 261 S.E. 2d 532 (1980), that the processing of food by a restaurant was not industrial in nature and is merely ancillary to the service provided in selling food at retail. Furthermore, the court held that "the (industrial) exemption was intended to apply only to true manufacturers or industries, and not to retailers such as restaurants," 220 Va. at 659.
Based upon the foregoing, it is clear that the intent of the General Assembly was not such as to exempt*********entire operation, including its retail outlets, from the sales and use tax or to exempt from tax the processing carried out by restaurants, caterers, and similar operations in providing food and beverages to customers.
Inasmuch as food preparation prior to retail sale is not an industrial processing activity within the scope of the exemption found in Virginia Code § 58-441.6, I cannot conclude as you have that fuel canisters and door slips used in ***** retail operations are exempt from the tax. Furthermore, such items are not a part of the products sold, as are delivery cartons. Therefore, a resale exemption is unavailable for fuel canisters and door slips.
Accordingly, I must continue to deem the assessment issued to ***** to be correct and payable with respect to operations carried on outside of ***** commissary.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner