Tax Type
Retail Sales and Use Tax
Description
Fabrication labor; Charges to cut steel
Topic
Taxability of Persons and Transactions
Date Issued
04-16-1984
April 16, 1984
Re: § 58-1118 Application/November 1, 1980 - July 1, 1983 - Sales Tax
Dear **********************
This responds to your letter of January 5, 1984, which enclosed a copy of your letter of November 23, 1983, in which you protested an assessment of sales tax on certain transactions involving fabrication labor for the audit period November 1, 1980 through July 31, 1983.
You have received a response to your letter of November 1983 from the Technical Services Sectionof the Office Services Division. In that response, it was explained that in the previous audit of your firm (December 1, 1975 through May 31, 1979), although you were engaged in fabrication, you were not deemed to be manufacturing in the industrial sense and your firm was denied exemption on equipment and supplies used in fabricating steel products for sale. As a result of a 1983 legislative change (Ch. 414, 1983 Acts of Assembly), your business is now classified as a manufacturer in the industrial sense, and this classification is reflected in the current audit which you are contesting. It would not have been possible for you to have been classified in 1979 as a manufacturer in the industrial sense.
Your manufacturing status having been sufficiently addressed, this determination letter will respond directly to your protest concerning the taxation of fabrication labor.
FACTS
The taxpayer is engaged in fabricating steel products and selling steel and fabricated steel products. A separate charge is made for the labor involved in fabricating steel products and in cutting stock steel (plate, bar, rod) to customer specifications, e.g., cutting bars into smaller links or cutting a smaller plate from a sheet of steel to meet a customer's needs.
The taxpayer was audited for the period November 1, 1980 through July 31, 1983, and contested the application of the sales tax to these labor charges on the grounds that he was not made aware of their taxability by the department and was told explicitly in the 1979 audit that fabrication labor was not taxable. The department insists that although it may have incorrectly advised the taxpayer concerning cutting stock steel to customer specifications, it did make clear to the taxpayer that the labor involved in fabricating steel products is taxable.
DETERMINATION
The only exclusion for labor under the Virginia Retail Sales and Use Tax Act is given under the definition of "sales price" in § 58-441.3(b), Code of Virginia, which reads in part:
"...nor shall the sales price include the amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold...."
Fabrication labor is not within the meaning of "installing, applying, or remodeling or repairing property." Under Retail Sales and Use Tax Regulation 1-37, "[a]n operation that changes the form or state of tangible personal property is fabrication." The regulation further states that "[t]he tax applies to the total charge for the fabrication of tangible personal property on a special order for consideration, including labor, even if charges for labor are separately stated."
In addition, Regulation 1-97.1 provides that, except for specific exclusions and exemptions, the tax applies to "the charge for any services included in the sale of tangible personal property." There is no support under law, regulation or ruling for exempting fabrication labor from the Virginia Retail Sales and Use Tax. However, because of the misunderstanding that evidently occurred during the 1979 audit concerning the taxation of labor when stock steel is cut to customer specifications, we will remove these charges from the audit and adjust the assessment accordingly. You are hereby notified, however, that prospectively you should collect sales tax on all fabrication labor, including cutting stock steel.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner