Tax Type
Retail Sales and Use Tax
Description
Gas and syrup cylinders; Soft drink distributor
Topic
Property Subject to Tax
Date Issued
02-05-1993
February 5, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear ****
This will reply to your letter of March 24, 1992 in which you seek correction of a sales and use tax assessment to your company, **** (the "Taxpayer"), for the period June 1988 through April 1991.
FACTS
The Taxpayer, a manufacturer and distributor of soft drinks contests the application of the tax to returnable CO2 gas cylinders and returnable cylinders used to package bulk quantities of syrup for resale to retailers. You maintain that the returnable cylinders are exempt from the tax as "packaging materials" under Virginia Regulation (VR) 630-10-63. The auditor, however, held such items taxable since the Taxpayer was not an industrial manufacturer/processor with respect to the gas or syrup transported in the cylinders.
DETERMINATION
Va. Code §58.1-608(A)(3)(b)(iv) provides an exemption from the retail sales and use tax for "materials, containers, labels, sacks, cans, boxes, drums or bags for future use for packaging tangible personal property for shipment or sale." However, as explained in VR 630-10-63, the exemption is available only to industrial manufacturers or processors of products for sale or resale.
According to the auditor, the Taxpayer is not engaged in industrial manufacturing or processing - it merely purchases CO2 gas and syrup in bulk quantities and refills the cylinders. The Taxpayer, on the other hand, maintains that it manufactures the syrup by taking certain purchased raw materials and transforms them into the syrup.
If the Taxpayer can provide department with definitive documentation to support its contention that it manufactures the syrup, I will agree to remove from the assessment the tax assessed on the containers used to package such. The CO2 gas cylinders however, will remain taxable as the gas is not manufactured but merely repackaged by the Taxpayer.
You should note that VR 630-10-26 is inapplicable in the instant case as it is specifically for those packaging materials "marketed with the product being sold and (which) become the property of the purchaser." The gas and syrup cylinders do not become the property of the purchaser but are returned to the Taxpayer.
Accordingly, the assessment will be adjusted as explained above provided the Taxpayer submits the requested documentation within 45 days to the department's Office of Compliance. Audit Review Unit, P.O. Box 615, Richmond, Virginia 23205-0615. If such documentation is not received within the allotted time period a revised Notice of Assessment with accrued interest will be mailed to the Taxpayer and will be due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6078H
Rulings of the Tax Commissioner