Tax Type
Retail Sales and Use Tax
Description
Manufacturing and fabrication; Certificates of exemption
Topic
Exemptions
Date Issued
06-05-1985
June 5, 1985
RE: Ruling Request/Sales and Use Tax
Dear ****
This will reply to your letter of May 7, 1985, requesting information on the correct application of the sales and use tax to a certain transaction.
Facts
The transaction described involves the following 3 steps:
(1) Out of State manufacturer A purchases raw materials from manufacturer B who has sales tax nexus to Virginia.
(2) A directs B to ship the raw materials directly to a Virginia fabricator C, for fabrication according to A's specifications.
(3) Upon completion of fabrication, the materials are then shipped out of State to A for final processing and eventual resale to A's customers.
With reference to the transaction outlined above, you ask whether Virginia would accept A's out of state registration number on a Virginia resale exemption certificate provided by B, to exempt the purchase of raw materials from B. And, if the answer to the first question is no, what documentation would be necessary to exempt the transaction.
Determination
§630-10-37 of the Virginia Sales and Use Tax Regulations provides that "the tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work." For example, the regulation states, "a tailor who makes an article of wearing apparel from material furnished by the customer must collect and pay the tax on the charge for making the apparel."
While ordinarily, C should charge and collect the sales tax on its total charge for fabricating raw materials provided by customers like A, the fabricated materials in this case are shipped out of state to A immediately upon completion of the fabrication process. Therefore, the transaction is governed by ' 630-10-51 of the Virginia Sales and Use Tax Regulations on Interstate Commerce, which provides in pertinent part:
The tax does not apply to:
(1) Sales of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle:
(2) Sales of tangible personal property delivered to a purchaser outside the state by an independent trucker or contract carrier hired by the seller;
(3) Sales of tangible personal property delivered by the seller to a common carrier, or to the U.S. Post Office for delivery to a purchaser outside the state; or
(4) Purchases of tangible personal property for resale and immediate transportation out of state by a dealer properly registered in another state, provided a valid certificate of exemption is secured by the Virginia seller.
Therefore, based on the foregoing, B will not be liable for Virginia sales tax on purchases of raw materials by A and fabricated in Virginia by C, so long as B obtains a valid Virginia resale exemption certificate from A which appropriately references A's out of state registration number.
In addition, there will be no sales and use tax liability for the fabrication charges, provided the fabricated materials are shipped outside of Virginia by one of the methods listed in Regulation §630-10-51 above.
I hope that this has answered your questions, but feel free to contact the department if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
RE: Ruling Request/Sales and Use Tax
Dear ****
This will reply to your letter of May 7, 1985, requesting information on the correct application of the sales and use tax to a certain transaction.
Facts
The transaction described involves the following 3 steps:
(1) Out of State manufacturer A purchases raw materials from manufacturer B who has sales tax nexus to Virginia.
(2) A directs B to ship the raw materials directly to a Virginia fabricator C, for fabrication according to A's specifications.
(3) Upon completion of fabrication, the materials are then shipped out of State to A for final processing and eventual resale to A's customers.
With reference to the transaction outlined above, you ask whether Virginia would accept A's out of state registration number on a Virginia resale exemption certificate provided by B, to exempt the purchase of raw materials from B. And, if the answer to the first question is no, what documentation would be necessary to exempt the transaction.
Determination
§630-10-37 of the Virginia Sales and Use Tax Regulations provides that "the tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work." For example, the regulation states, "a tailor who makes an article of wearing apparel from material furnished by the customer must collect and pay the tax on the charge for making the apparel."
While ordinarily, C should charge and collect the sales tax on its total charge for fabricating raw materials provided by customers like A, the fabricated materials in this case are shipped out of state to A immediately upon completion of the fabrication process. Therefore, the transaction is governed by ' 630-10-51 of the Virginia Sales and Use Tax Regulations on Interstate Commerce, which provides in pertinent part:
The tax does not apply to:
(1) Sales of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle:
(2) Sales of tangible personal property delivered to a purchaser outside the state by an independent trucker or contract carrier hired by the seller;
(3) Sales of tangible personal property delivered by the seller to a common carrier, or to the U.S. Post Office for delivery to a purchaser outside the state; or
(4) Purchases of tangible personal property for resale and immediate transportation out of state by a dealer properly registered in another state, provided a valid certificate of exemption is secured by the Virginia seller.
Therefore, based on the foregoing, B will not be liable for Virginia sales tax on purchases of raw materials by A and fabricated in Virginia by C, so long as B obtains a valid Virginia resale exemption certificate from A which appropriately references A's out of state registration number.
In addition, there will be no sales and use tax liability for the fabrication charges, provided the fabricated materials are shipped outside of Virginia by one of the methods listed in Regulation §630-10-51 above.
I hope that this has answered your questions, but feel free to contact the department if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner