Tax Type
Retail Sales and Use Tax
Description
Computer used to schedule manufacturing
Topic
Taxability of Persons and Transactions
Date Issued
12-23-1987
December 23, 1987
Re: Ruling Request/Sales and Use Tax
Dear **************************
This will reply to your letter of August 26, 1987, on behalf of ********* (taxpayer), seeking an exemption from the sales and use tax for a computer which you contend is used directly in the taxpayer's manufacturing process.
FACTS
According to your letter and the information obtained at a recent meeting by our audit supervisor, and our auditor ********** the computer is used more than 50% of the time in generating design specifications which describe the materials to be used, the processes to be followed and the physical dimensions required for the taxpayer's manufacturing process. It is the department's understanding that these specifications take the form of a computer generated "lot quantity control card" which instructs the taxpayer's production line employees of tasks to be performed at various stages of the manufacturing process.
In addition, you state that the computer directs product line testing and quality control functions, and assists the taxpayer's production control department in scheduling the manufacturing process. Therefore, you ask whether the taxpayer's computer qualifies for exemption from the sales and use tax as an item of machinery or equipment used directly in manufacturing, under Virginia Code §58.1-608(1).
RULING
Section 58.1-608(1) of the Virginia Code provides an exemption from the tax for, "...machinery...used directly in manufacturing." The definition of "manufacturing" set forth in Va. Code §58.1-602(9) "includes the production line of the plant, starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where the product is finished or completed for sale and convoyed to a warehouse at the production site." (Emphasis added)
Under this definition, the exemption is limited only to production line activities. In this case, the computer is not used on the production line itself, but is used in pre-production activities. Furthermore, the computer does not direct production activities so as to be exempt under Virginia Retail Sales and Use Tax Regulation 630-10-63(C)(2), copy enclosed. Instead, the computer generates computer cards which are later used by the taxpayer's employees in performing
production line tasks.
Based on the information provided, I cannot agree that the taxpayer's computer is used directly in its manufacturing process.
I hope that the foregoing has responded to your question, but let me know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner