Tax Type
Retail Sales and Use Tax
Description
Contractor supplies stored in Virginia for an out-of-state job
Topic
Taxability of Persons and Transactions
Date Issued
03-19-1984
March 19, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear *****************
This will reply to your letter of December 2, 1983 in which you submit an application for correction of sales and use tax assessed************* to as the result of an audit.
FACTS
************** (hereinafter ************* ) is engaged as an electrical contractor within Virginia and surrounding states. An audit of ********* produced an assessment for the failure to remit the use tax on certain items of tangible personal property purchased in ********** Tennessee and stored in Virginia for future use in the electrification of a Kentucky coal mine.
************** contests this assessment, contending that the items in question were exempt from the Kentucky sales and use tax and should therefore be exempt from the Virginia tax and requests relief accordingly.
DETERMINATION
§58-441.5 of the Code of Virginia imposes "a tax upon the use or consumption of tangible personal property" in Virginia. Virginia Code §58-441.3(h) in turn defines the word "use" to mean and include "the exercise of any right or power over tangible personal property incident to the ownership thereof."
In this case, *********has been assessed tax under the above statutes for tangible personal property stored in Virginia for subsequent use in the performance of an electrical contract with a Kentucky mining operation. asserts though that the items it stored in Virginia could have been purchased exclusive of a sales tax within Kentucky but that the corporation had no facilities to store such materials within that state.
Such a situation was foreseen by the General Assembly when Virginia Code §58-441.15(f) was enacted, providing that "[p]ersonal property purchased by a contractor which is used solely in another
state ... which could be purchased by such contractor for such use free from sales tax in such other state ... and is stored temporarily in Virginia pending shipment to such state ... shall not be subject to the sale or use tax.
Therefore, if the items included in the department's audit indeed could have been purchased exclusive of the tax in Kentucky and were used in Kentucky, the department will revise its audit to delete those items. However, there is strong reason to believe that not all of the items ******** purchased for use in its contract with the Kentucky mining operation could have been purchased exclusive of the tax within Kentucky.
Based upon the facts before me, the items purchased by ********* appear to have been used both in the installation of wiring for machinery and other mining equipment and the installation of general plant wiring and wiring for plant lighting. You assert that the items purchased by******* could have been purchased tax-exempt in Kentucky and have forwarded a copy of a Kentucky Certificate of Exemption for Machinery for New and Expanded Industry in support of your argument. That form states that "[t]his certificate may be executed only for those purchases of tangible personal property which qualify for exemption under Kentucky Revised Statute 139.170, Kentucky Statute 139.480(B) and Regulation 103 KAR 30:120."
Regulation 103 KAR 30:120 sets forth the following requirements for the Kentucky exemption:
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- The machinery and the appurtenant equipment necessary to the completed installation of such machinery, together with the materials directly used in the installation of such machinery and appurtenant equipment, which are incorporated for the first time into new or existing plant facilities, or which are installed in the place of existing plant machinery having a lesser productive capacity, and which are directly used in a manufacturing or processing production operation shall be exempt from the sales and use tax. The term "processing production" shall include: the processing and packaging of raw materials, in-process materials, and finished products; the processing and packaging of farm and dairy products for sale; and the extraction of minerals, ores, coal, clay, stone and natural gas.
Expanding on the direct use concept above, the regulation goes on to state that "[m]achinery must be intimately involved in production in order to be considered used "directly" in the manufacturing process. The fact that machinery is necessary for a manufacturing process does not automatically qualify it for exemption.
Based upon the Kentucky regulation above, wiring for mining machinery would most certainly be exempt from the Kentucky tax; however, wiring for mine lighting and general mine and plant wiring would not be exempt from the tax as such wiring is not used directly in a manufacturing process. purchases which were included in this audit were prorated based upon their usage. Sixty percent were deemed to be used in an exempt manner within Kentucky. The remaining forty percent of the items were deemed to be used in general wiring and wiring for plant and mine lighting and tax was assessed accordingly.
Therefore, based on the information before me, I can find no basis for the relief of tax and interest assessed in this case except that tax assessed to ******** for the months of August and September 1977 was assessed outside of the statute of limitations and will be relieved. However, I will consider revising the ******* audit further if you can provide written certification from the Kentucky Department of Revenue that the items purchased by********** would be exempt from the Kentucky sales and use tax when used in general mine or plant wiring and wiring for mine or plant illumination. Such certification should be submitted within the next sixty days; otherwise, this determination is final.
Sincerely.
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner