Tax Type
Retail Sales and Use Tax
Description
Paper cutting operation; Machinery
Topic
Taxability of Persons and Transactions
Date Issued
02-20-1987
February 20, 1977
Re: Virginia Code §58.1-1821 Application
Retail Sales and Use Tax
Dear ******************
This is in reply to your letter of April 8, 1986 in which you make application for correction of the assessment issued as a result of the department's recent Sales and Use Tax audit of your company, ***************** (Company).
FACTS
Company receives large rolls of paper, which it either cuts down to certain standard sizes, and holds in inventory for resale or cuts into specific sizes upon request by customers. In addition to this paper cutting operation, Company also purchases precut paper for resale without making any modification before the resale of such paper. Additionally, Company uses its machines to cut customer supplied paper to a specific size.
The department assessed Company tax on the purchase of the tangible personal property used in this paper cutting operation. You contend that the purchase of the tangible personal property used in this operation is exempt from the tax under the provisions of Virginia Code §58.1-608.1 (c).
DETERMINATION
Virginia Code §58.1-608.1 (c) exempts from the Virginia Retail sales and Use Tax:
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- 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;
- 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;
The Virginia Supreme Court, in Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E. 2d 511 (1973), held that the above statute was intended "to provide exemption for machinery and tools used in ... manufacturing... products for sale or resale only in the industrial sense," (214 Va. at 278). Therefore, in order for machinery or tools to gain exemption under Virginia Code §58.1-608.1 (c), two tests must be satisfied. First, the machinery or tools must be an integral part of a process in which products are manufactured for sale or resale and second, the manufacturing process must be industrial in nature.
Virginia Code §58.1-602.9 provides in part that:
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- The determination whether any manufacturing, mining, processing, refining or conversion activity is industrial in nature shall be made without regard to plant size, existence or size of finished product inventory, degree of mechanization, amount of capital investment, number of employees or other factors relating principally to the size of the business. Further, "industrial in nature n shall include, but not be limited to, those businesses classified in codes 10 through 14 and 20 through 39 published in the Standard Industrial Classification Manual for 1972 and any supplements issued thereafter.
- The determination whether any manufacturing, mining, processing, refining or conversion activity is industrial in nature shall be made without regard to plant size, existence or size of finished product inventory, degree of mechanization, amount of capital investment, number of employees or other factors relating principally to the size of the business. Further, "industrial in nature n shall include, but not be limited to, those businesses classified in codes 10 through 14 and 20 through 39 published in the Standard Industrial Classification Manual for 1972 and any supplements issued thereafter.
Based upon the foregoing, I find no basis for correction of the assessment. The full amount of the assessment is hereby due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner