Tax Type
Retail Sales and Use Tax
Description
Electricity and steam production
Topic
Taxability of Persons and Transactions
Date Issued
11-03-1986
November 3, 1986
Re: Request for Ruling/Sales and Use Tax
Dear *****************
This will reply to your letter of August 13, 1986, in which you request a ruling on the applicability of the sales and use tax exemption for industrial manufacturing and processing to the operations of your corporation.
§58.1-608.1 of the Code of Virginia 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...(or) manufacturing...products for sale or resale." In interpreting this statute, the Virginia Supreme Court has concluded that the exemption is intended to apply to the production of products "for sale or resale only in the industrial sense," Golden Skillet v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).
As stated in your letter, your corporation will be engaged in the production of electricity for sale to public utilities and steam for sale to manufacturers for use in production processes. Inasmuch as your corporation is producing tangible personal property (electricity and steam) for sale to others and because such production is industrial in nature, its activities qualify for the industrial manufacturing and processing exemption.
As your corporation is entitled to the exemption, it will be subject to the provisions of Virginia Regulation 630-10-63. Under this regulation, the machinery used directly in the production of electricity and steam, including high pressure steam boilers, turbines, and generators, would generally be exempt from the tax. However, tangible personal property used in the distribution of electricity and steam would be taxable. Similarly taxable under the regulation would be items used for the general maintenance of production machinery and various other items used indirectly in production. However, if questions arise as to the taxability of specific items, I would encourage you to seek further guidance from the department.
If we can provide further information or assistance, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner