Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Cardboard baling equipment
Topic
Taxability of Persons and Transactions
Date Issued
05-24-1994
May 24, 1994
Re: Request for Ruling: Sales and Use Tax
Dear*************
This will reply to your letter of October 27, 1993 in which you request a ruling as to the application of the Virginia sales and use tax to certain aspect of your operations in Virginia.
FACTS
***********(the Taxpayer) is in the retail business with stores located in Virginia. As part of their operations, the Taxpayer purchases baling equipment which is used to compact and tie waste cardboard boxes which are then sold to a cardboard recycler. The Taxpayer is seeking a ruling to determine if the baling equipment enjoys a sales tax exemption as either manufacturing equipment or recycling equipment for Virginia tax purposes.
RULING
Va. Code §58.1-609.3(2) provides an exemption from the sales and use tax for machinery and equipment, tools, supplies, etc., used directly in the production of products for sale or resale by industrial processors. The term "processing" was defined by the Virginia Supreme Court in Commonwealth v. Orange-Madison Cooperative, 220 Va. 655, 261 S.E.2d 532 (1980) as requiring that a product undergo a treatment rendering it more marketable or useful. Virginia Regulation (VR) 630-10-63.B.1 (copy enclosed) defines industrial processor to include establishments engaged in the treatment of material, substances, or other products in such a manner as to render such products more useful or marketable.
Keeping the above in mind, I am unable to grant the sales and use tax exemption based on Va. Code §58.1-609.3(2). The cardboard which is being baled by the Taxpayer clearly does not undergo any type of treatment which would render the cardboard more marketable or useful. While I realize the cardboard may eventually enter into an exempt manufacturing process by the recycler, the exemption does not extend to the baling activity performed by the Taxpayer.
With regard to the recycling exemption requested by your letter, Virginia does not provide a sales and use tax exemption for recycling equipment, per se. Recycling equipment used directly in industrial manufacturing or processing does qualify for exemption under Va. Code §58.1-609.3(2). However, as noted above, the Taxpayer's operation is not deemed to be industrial processing.
If you should have any further questions, please feel free to contact the department.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7469K
Rulings of the Tax Commissioner