Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Coal crushing equipment
Topic
Taxability of Persons and Transactions
Date Issued
05-16-1994
May 16, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear*******
This is in response to your appeal of the tax, penalty and interest assessed to********(the "Taxpayer") as the result of a sales and use tax audit for the period of July, 1991 through August, 1992.
FACTS
The Taxpayer was set up to construct, own and operate a coal handling facility for a large Virginia paper manufacturer (the "Manufacturer"). The Taxpayer's facility is located on the plant site on land owned by the Manufacturer. The coal being processed is purchased by the Manufacturer and never falls under the ownership of the Taxpayer. The coal is delivered to the plant site by rail or truck where the Taxpayer's handling of the coal begins.
The Taxpayer is responsible for transporting, storing, and crushing the coal into a more useable form. The Taxpayer's facility consists of a rotary railroad car dumper, conveyor belts, storage silos, and crushers. The Taxpayer was audited and assessed sales tax on the purchase of all equipment used at the facility. The Taxpayer is taking exception to the taxing of such equipment as they feel it is being used in the handling and storage of a raw material, and therefore exempt.
DETERMINATION
Based on the information provided in your letter, there are two separate and distinct operations taking place at the Manufacturer's plant site; i) the manufacture of paper carried out by the Manufacturer, and ii) the processing of coal carried out by the Taxpayer. For purposes of this determination, we will address the Taxpayer's operation only.
Va. Code §58.1-609.3(2) provides an exemption for "machinery or tools or repair parts therefor or replacement thereof, fuel, power, energy, or supplies, used directly in processing,... or converting products for sale or resale." Virginia Regulation (VR) 630-10-63(B) defines "industrial processors" to "include establishments engaged in the treatment of materials, substances, or other products in such a manner as to render such products more useful or marketable." As a general rule, the department looks to the Standard Industrial Classification (hereinafter "SIC") Manual published by the U.S. Department of Commerce to determine those industries which qualify as "industrial processors or manufacturers." Industrial processors and manufacturers include those industries included in, but not limited to, SIC codes 10 through 14 and 20 through 39. In looking at SIC code 1221, we find that coal preparation plants and coal crushing plants qualify as industrial processors. Based on the fact the Taxpayer's operation involves the crushing and sizing of coal to a more useable form, I find the Taxpayer's coal handling facility would qualify for the sales and use tax exemption as an industrial processor.
Based on the above, the audit will be revised and a revised assessment will be issued. If you should have any further questions, please feel free to contact the department.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/6689K
Rulings of the Tax Commissioner