Tax Type
Retail Sales and Use Tax
Description
Steel fabrication charges; Launchway foundation and supports
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
09-13-1991
September 13, 1991
Re: § 58.1-1821 Application: Sales and Use Tax
Dear ***************
This will respond to your request for reconsideration of the department's January 11, 1990 determination issued to****************("the Taxpayer").
Facts
************* ("the Taxpayer") operates as a steel fabricator engaged in the construction and repair of barges. An audit of the Taxpayer for the period April 1984 through February 1986 produced assessments for its failure to collect the sales tax on the labor associated with the splicing or welding of steel beams and failure to remit the use tax on purchases of concrete and steel used in the construction of supports and foundations for a variable slope launchway. The Taxpayer contested the assessments, contending that the splicing or welding of beams furnished by customers is a nontaxable service and that the supports and foundations are exempt as component parts of exempt production machinery.
The department's January 11, 1990 determination (P.D. 90-14, copy enclosed) found that the slicing or welding of beams for customers constitutes fabrication, charges for which are taxable under Va. Code § 58.1-602 and Virginia Regulation (VR) 630-10-37. However, the charges were removed from the audit and the Taxpayer advised to collect the sales tax on all such charges in the future. In addition, the concrete supports and foundations were held taxable as items not used directly in manufacturing. After issuance of the determination and pursuant to the Taxpayers request for reconsideration, department representatives visited the Taxpayer's production facility to obtain additional information on the items in question.
DETERMINATION
After carefully reviewing the information presented by the Taxpayer, I cannot agree that the splicing and welding transactions at issue in this case represent the provision of nontaxable services. The application of the sales and use tax to similar such transactions has consistently been held taxable by the department as explained in my prior ruling to the Taxpayer. The department's position in this case is consistent with its long-standing policy on fabrication, reflected in regulations published in 1966, 1969, 1979, and 1985 (a copy of the 1985 regulation is attached). Moreover, we note that such transactions are similarly deemed taxable in four of the five states bordering Virginia and in the District of Columbia. It is my understanding that such transactions are also taxable in Florida and Louisiana. While the Taxpayer will not be held liable for any such untaxed transactions occurring prior to the date of this letter, it should immediately begin collecting the tax if it is not already doing so.
In addition, I must continue to find that the supports and pilings used for support are not used directly in the actual production process within the meaning of Va. Code § 58.1-608(A)(3)(b)(iii) and VR 630-10-63. These items function as supports and foundations for portions of the production line but are not themselves a component part of the Taxpayer's production equipment and are not used immediately in the production process. Rather, such items are convenient or facilitative to production and taxable pursuant to the Virginia Supreme Court's opinions in Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E. 2d 619 (1973); Webster Brick v. Department of Taxation, 219 Va. 81, 245 S.E. 2d 252 (1978); and Commonwealth v. Wellmore Coal, 228 Va. 149 (1984). Moreover, the department has consistently held in cases involving analogous supports and foundations that such materials, while they may be essential to the production process, are not within the scope of the manufacturing exemption. See Ruling of the Commissioner dated December 14, 1982, copy enclosed.
Based on all of the foregoing, I do not find basis for correction of the assessments in this case.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner