Tax Type
Retail Sales and Use Tax
Description
Gas cylinder rentals; Manufacturing
Topic
Taxability of Persons and Transactions
Date Issued
12-05-1990
December 5, 1990
Dear ****
This will reply to your letter of May 22, 1990, in which you request a ruling on behalf of your client (the Taxpayer) on the application of the Virginia Retail sales and use tax on the receipts from the rental or lease of cylinders or vessels in which gasses are stored and delivered to customers.
FACTS
The Taxpayer is engaged in the business of producing and selling industrial, medical, and specialty gasses. The gasses are stored and delivered to the Taxpayer's customers in liquid form in vessels or gaseous form in cylinders. The Taxpayer leases or rents the vessels or cylinders to its customers. The Taxpayer requests a ruling on: 1) whether the tax is applicable to tangible personal property used in the manufacturing, assembling, processing or production of tangible personal property and if so, is the Taxpayer's rental or lease of gas vessels or cylinders to a customer taxable; and 2) whether the tax is applicable to tangible personal property used in food processing and if so, is the rental or lease of gas vessels or cylinders to a food processor taxable.
RULING
Generally, Va. Code§ 58.1-608(3)(b) provides an exemption for industrial materials, machinery, and tools and their repair parts, fuel, power, energy and supplies used directly in manufacturing, processing, or mining products for sale in the industrial sense. Additionally, Virginia Regulation (VR 630-10-63 defines industrial manufacturers and processors as establishments engaged in the mechanical or chemical transformation of substances or materials into new products or engaged in the treatment of materials, substances, or products in such a way to render the products more marketable or useful. Items that are used directly are an integral and not merely a convenient or facilitative part of the production or process.
Manufacturing
As stated above, Virginia does grant an exemption for tangible personal property used directly in industrial manufacturing or processing. While it may be true that the gas itself contained in the vessels or cylinders is used directly in manufacturing, the department's longstanding policy is that the vessel or cylinder is merely used to store or contain the liquid or gas, and consequently is used indirectly in the manufacturing process. Therefore, receipts from the lease or rental of the vessels or cylinders used to store or deliver the liquid or gas used in manufacturing are subject to the tax. In a similar situation, the Virginia Supreme Court in Webster Brick Company v. Department of Taxation, 219 Va. 81, 245 S.E.2d 252 (1978), which involved the taxability of oil storage tanks, held that even though the oil itself was used directly in the process, the tanks were not used directly in manufacturing but were simply storage facilities and therefore were subject to the tax.
Food Processing
VR 630-10-63(B) defines industrial processors as establishments engaged in the treatment of materials, substances, or other products in such a manner as to render such products more useful or marketable. Therefore, true food processors (as opposed to restaurants and other retail establishments whose processing activities are merely ancillary to the sale of prepared food) would fall under this exemption and those items that are used directly in processing would be exempt from the tax. As stated above, the gas used in the processing would be exempt from the tax, but the vessels or cylinders used to store or deliver the liquid or gas would not be used directly in the process and would be subject to the tax.
Should you have any further questions, please contact the Department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner