Tax Type
Retail Sales and Use Tax
Description
Crane used for ship repairs
Topic
Taxability of Persons and Transactions
Date Issued
06-19-1985
June 19. 1985
RE: Ruling Request/Sales and Use Tax
Dear ****
This will reply to your letter of May 14, 1985, on behalf of ***** (Taxpayer), seeking clarification of the sales and use tax status of a marine travelift or crane used by Taxpayer in its rendition of boat repair service.
According to your letter, the travelift or crane is used to transport ships and vessels from the water to blocks in the shipyard where repairs are conducted. It is further alleged in your letter that the equipment used to move the vessels to and from the water is an integral part of Taxpayer's repair service, and therefore, qualifies for sales and use tax exemption under §58.1-608(11) as "tangible personal property used directly in the building, conversion, or repair of ships or vessels" used in interstate or foreign commerce.
§ 58.1-608(1)(c) of the Virginia Code exempts from the Sales and Use Tax, "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale."
§ 630-10-63 of the Virginia Sales and Use Tax Regulations states in pertinent part that "for a business to obtain the exemption, it must first be manufacturing or processing products for sale or resale and secondly, such production must be industrial in nature." And a determination of whether a particular business is properly classified as industrial in nature may be made with reference to the Standard Industrial Classification Manual. §3731 of the Manual classifies shipbuilding and repair to be "industrial" in nature.
Furthermore, § 630-10-63(B)(2) provides, in pertinent part that the term "used directly refers to those activities that are an integral part of the production of a product, including all steps of an integrated manufacturing process." The integrated manufacturing process begins with "the handling and storage of raw materials at the plant site and continuing through the last step of production where products are finished or completed for sale and conveyed to a warehouse at the same plant site."
Please note that prior to July 1, 1984, if a single item of tangible personal property was used both directly and indirectly in industrial activities, the department would prorate the sales and use tax between such direct and indirect uses.
Subsequent to July 1, 1984, however, such property will be totally exempt from the tax if the preponderance of its use is in exempt production activities. (See § 630-10-63(D) of the Virginia Sales and Use Tax Regulations.)
Consequently, a final determination of the exempt versus non-exempt status of the travelift used by taxpayer in the present case cannot be made without documentation which details the direct versus indirect industrial uses of the travelift. For example, the travelift will not be considered to be used directly in exempt activities when it is transporting vessels away from the plant site or between different plant sites. Conversely, such travelift will be considered to be used directly in exempt activities when it is "used on the plant site to unload raw materials (i.e. the vessels) or to convey raw materials to storage or from storage to the production line, to convey products from one step of production to another, or to convey finished products to packaging or warehouse areas."
Therefore, based on when such travelift was purchased and how it was used by taxpayer, the department will either prorate the direct versus indirect uses of such equipment pursuant to pre-July 1, 1984 law, or hold its entire use to be either taxable or nontaxable, based on the preponderance of its use subsequent to July 1, 1984.
Such documentation should be submitted to the Technical Services Section, Department of Taxation, P. O. Box 6-L, Richmond, Virginia 23282.
Please also note that inasmuch as the Virginia Supreme Court's decision in Commonwealth v. United Airlines, Inc., 219 Va. 374, 248 S.E.2d 124 (1978) cited in your letter, was limited to a determination of the tax status of tangible personal property (namely conveyor belts) used directly in United's rendition of common carrier services, it is of limited precedential value in resolving the issues presented in the instant case.
I hope that all of the above has answered your questions, but please let me know if I can be of further assistance.
Sincerely,
W. H. Forst
Tax Commissioner
RE: Ruling Request/Sales and Use Tax
Dear ****
This will reply to your letter of May 14, 1985, on behalf of ***** (Taxpayer), seeking clarification of the sales and use tax status of a marine travelift or crane used by Taxpayer in its rendition of boat repair service.
According to your letter, the travelift or crane is used to transport ships and vessels from the water to blocks in the shipyard where repairs are conducted. It is further alleged in your letter that the equipment used to move the vessels to and from the water is an integral part of Taxpayer's repair service, and therefore, qualifies for sales and use tax exemption under §58.1-608(11) as "tangible personal property used directly in the building, conversion, or repair of ships or vessels" used in interstate or foreign commerce.
§ 58.1-608(1)(c) of the Virginia Code exempts from the Sales and Use Tax, "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale."
§ 630-10-63 of the Virginia Sales and Use Tax Regulations states in pertinent part that "for a business to obtain the exemption, it must first be manufacturing or processing products for sale or resale and secondly, such production must be industrial in nature." And a determination of whether a particular business is properly classified as industrial in nature may be made with reference to the Standard Industrial Classification Manual. §3731 of the Manual classifies shipbuilding and repair to be "industrial" in nature.
Furthermore, § 630-10-63(B)(2) provides, in pertinent part that the term "used directly refers to those activities that are an integral part of the production of a product, including all steps of an integrated manufacturing process." The integrated manufacturing process begins with "the handling and storage of raw materials at the plant site and continuing through the last step of production where products are finished or completed for sale and conveyed to a warehouse at the same plant site."
Please note that prior to July 1, 1984, if a single item of tangible personal property was used both directly and indirectly in industrial activities, the department would prorate the sales and use tax between such direct and indirect uses.
Subsequent to July 1, 1984, however, such property will be totally exempt from the tax if the preponderance of its use is in exempt production activities. (See § 630-10-63(D) of the Virginia Sales and Use Tax Regulations.)
Consequently, a final determination of the exempt versus non-exempt status of the travelift used by taxpayer in the present case cannot be made without documentation which details the direct versus indirect industrial uses of the travelift. For example, the travelift will not be considered to be used directly in exempt activities when it is transporting vessels away from the plant site or between different plant sites. Conversely, such travelift will be considered to be used directly in exempt activities when it is "used on the plant site to unload raw materials (i.e. the vessels) or to convey raw materials to storage or from storage to the production line, to convey products from one step of production to another, or to convey finished products to packaging or warehouse areas."
Therefore, based on when such travelift was purchased and how it was used by taxpayer, the department will either prorate the direct versus indirect uses of such equipment pursuant to pre-July 1, 1984 law, or hold its entire use to be either taxable or nontaxable, based on the preponderance of its use subsequent to July 1, 1984.
Such documentation should be submitted to the Technical Services Section, Department of Taxation, P. O. Box 6-L, Richmond, Virginia 23282.
Please also note that inasmuch as the Virginia Supreme Court's decision in Commonwealth v. United Airlines, Inc., 219 Va. 374, 248 S.E.2d 124 (1978) cited in your letter, was limited to a determination of the tax status of tangible personal property (namely conveyor belts) used directly in United's rendition of common carrier services, it is of limited precedential value in resolving the issues presented in the instant case.
I hope that all of the above has answered your questions, but please let me know if I can be of further assistance.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner