Tax Type
Retail Sales and Use Tax
Description
Water treatment facility; Processing equipment
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
06-02-1987
June 2, 1987
Re: Request for Ruling/Sales and Use Tax
Dear **************************
This will reply to your letter of March 24, 1987, in which you submit a request for a ruling on the application of the sales and use tax to a municipal water treatment facility.
§58.1-608.1 of the Code of Virginia provides an exemption from the sales and use tax for machinery, tools, supplies, etc., used directly in the production of products for sale or resale by industrial processors. The term "processing" was defined by the Virginia Supreme Court in Commonwealth v . Orange-Madison Cooperative, 220 Va. 655, 261 S.E.2d 532 (1980) as requiring that a product undergo a treatment rendering it more marketable or useful. Thus, for a processor to gain the industrial exemption, his products must first undergo some form of treatment rendering them more marketable or useful and the second, the products must be for sale or resale.
I gather that the municipal water treatment facility in question will chemically treat river or other water, which will in turn be sold to residential and business customers in the form of drinking water. If 90, the treatment process will meet both of the above tests for exemption and the municipality will be able to furnish you with an exemption certificate, Form ST-11, for any machinery, tools, supplies, etc. that will be used directly in the processing of water for sale or resale.
An exemption certificate may not be provided, however, with respect to any structural construction materials or any other materials that-will not be used directly in processing (see Virginia Regulation 630-10-63). Furthermore, you correctly note that the exemption will not be available unless the preponderance of an item's use (more than fifty percent) is in exempt processing activities. For instance, if fifty percent or more of the water processed by the treatment facility is used by the municipality and not sold to residential or other customers, the exemption will not apply.
I trust that this will answer your inquiry, but please feel free to contact the department if any further questions arise.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner