Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Jewelry repair work
Topic
Taxability of Persons and Transactions
Date Issued
11-16-1993
November 16, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter of March 25, 1992 in which you seek correction of sales and use tax assessed to ************* ( the Taxpayer) for the period May, 1988 through November, 1991.
FACTS
The Taxpayer is primarily engaged in the fabrication and repair of custom jewelry on a wholesale basis. As the result of an audit, the Taxpayer was assessed tax on tangible personal property used in the provision of its fabrication and repair work. The Taxpayer contends that its custom jewelry and repair operation is that of a manufacturer based on such designation for purposes of local taxation and therefore, qualifies for exemption under Va. Code §58.1-609.3(2).
DETERMINATION
Va. Code §58.1 -609.3(2), copy enclosed, 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. This interpretation was substantiated by the Virginia Supreme Court, in Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E. 2d 511 (1973), which held that the cited statute was intended "to provide exemption for machinery and tools used in ... manufacturing ... products for sale or resale only in the industrial sense." And, Va. Code §58.1-602 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."
Generally, businesses engaged in manufacturing are classified under SIC codes 20 through 39 and are involved in transforming raw materials into useful and marketable products within a factory, plant or mill environment using power driven machinery and materials handling equipment. (See SIC manual, page 67) Jewelry manufacturers fall within the scope of group 39 and their activities may range from mass production of mountings and settings from precious and semi-precious metals to cutting or faceting gem stones.
In this case, the Taxpayer is primarily engaged in assembling jewelry component parts to produce custom jewelry for sale to the retail trade. I will agree that the Taxpayer's operation exhibits some similarities, such as its lapidary work, when compared to establishments involved in jewelry manufacturing as described under SIC codes 3911 and 3915; however, the Taxpayer's operation does not possess the general elements of a manufacturing business. Although the Taxpayer is located in an industrial park, its physical operation is not highly mechanized nor does it function on a factory or plant basis
The Taxpayer is essentially involved in the fabrication of jewelry products as a wholesaler and as such, should be classified under SIC code 5094 - wholesale distribution of jewelry. Therefore, tangible personal property used by the Taxpayer in the fabrication of special order or custom jewelry does not qualify for the manufacturing exemption and is subject to the tax at the time of purchase.
My decision is governed by the department's policy with respect to exemption from the sales and use tax as dictated by the rule of strict construction established by the Virginia courts. The Virginia Supreme Court has consistently held that "exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption." See Golden Skillet corporation.
Regarding the repair portion of the Taxpayer's business operation, VR 630-10-99, copy enclosed, provides that "the tax does not apply to charges for repairs made by shoe, leather, jewelry, and the like repairmen. Purchases of equipment, tools, materials and supplies used in performing such repairs are taxable at the time of purchase."
Accordingly, I find no basis for adjustment to the assessment. You will receive an updated "Notice of Assessment" under separate cover which should be paid within 30 days to avoid the accrual of additional interest and collection activity.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6071J
Rulings of the Tax Commissioner