Tax Type
Retail Sales and Use Tax
Description
Rebuilding of railway cars; Manufacturing
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
07-28-1989
July 28, 1989
Re: §58.1-1821 Application: Sales and Use Tax
Dear*****************
This will reply to your letter of May 22, 1989, regarding the department's recent sales and use tax audit of your corporation.
FACTS
Your corporation engages in the repair and rebuilding of railway cars. A recent audit of your corporation produced an assessment for equipment and other tangible personal property used in the performance of its business. In addition, you question the application of the tax to work performed for certain out-of-state questions.
DETERMINATION
Va. Code §58.1-608(1) provides an exemption from the sales and use tax for machinery, tools, and other items used directly in the manufacture of tangible personal property for sale or resale in the industrial sense (see Virginia Regulation 630-10-63, copy enclosed). Va. Code §58.1-602(9) in turn provides that the term "industrial in nature" shall include all businesses classified in "codes 10 through 14 and 20 through 39 of the Standard Industrial Classification (SIC) Manual."
A review of the SIC Manual reveals that businesses engaged in the building or rebuilding of rail cars are classified in SIC Code 3733. Therefore, this activity is deemed to be industrial in nature and equipment and other items used directly in this activity is deemed to qualify for the industrial manufacturing exemption.
This contrasts, however, with the repair of rail cars, which is classified in SIC Code 4789 and is therefore considered to be a nonindustrial activity. The application of the tax to property used both in the rebuilding and repairing of rail cars is determined based on the preponderance of the property's overall use (see subsection D of VR 630-10-63).
I have requested the department's audit staff to review the audit of your corporation in light of these findings. In addition, it is my understanding that no transactions involving rebuilt rail cars that were delivered in interstate commerce to customers located outside Virginia were included in the department's audit.
Please do not hesitate to contact the department if any questions or contested issues remain after our auditor's review
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner