Tax Type
Retail Sales and Use Tax
Description
Tannergas used in sawmill operation
Topic
Exemptions
Property Subject to Tax
Date Issued
07-11-1986
July 11, 1986
Re: Ruling Request/ Sales and Use Tax
Dear ******************
This will reply to your letter of March 3, 1986 and additional information submitted by letter dated March 14, 1986 in the above referenced case.
FACTS
************* (taxpayer), is engaged in the manufacture of lumber through its sawmill operation. In connection with such operation, taxpayer uses tannergas during the winter months to prevent the freezing up of certain hydraulic and air lines which provide the main source of power needed to run its sawmill. According to taxpayer, at times during the winter months such tannergas is an indispensable part of its entire mill operation.
Therefore, taxpayer seeks a ruling that such tannergas is exempt of the sales and use tax as an integral part of its lumber processing operation.
RULING
§58.1-608(1)(c) of the Virginia Code provides an exemption from the sales and use tax for "[m]achinery 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;" (Emphasis added)
§630-10-63(B)(2) of the Retail Sales and Use Tax Regulations defines "used directly" to mean:
-
- those activities that are an integral part of the production of a product, including all steps of an integrated manufacturing process, but not including incidental activities such as general maintenance, management and administration. [Furthermore],.. convenient or facilitative items,.. or items which are essential to the operation of a business but not an immediate part of actual production, are not used directly in manufacturing or processing even though such items may be directly attached to exempt production machinery.
While the tannergas in the present case is arguably essential to maintain the smooth functioning of taxpayer's entire lumber processing operation at times during the winter months, I cannot find basis to hold that such tannergas is used directly in such lumber processing, within the meaning of the sales and use tax law. If such fuel was used or consumed by taxpayer directly in the operation of its lumber processing machinery and equipment it would qualify for the exemption. However, such fuel is utilized by taxpayer only indirectly as an item of preventive maintenance, (and only on a seasonal basis), in support of its actual lumber processing operation.
Based on the foregoing, I find no basis for concluding that the tannergas used in the present case qualifies for exemption from the sales and use tax.
I hope this has answered your questions but please let me know if we may be of further assistance.
Sincerely,
W.H. Forst
Tax Commissioner
Rulings of the Tax Commissioner