Tax Type
Property Tax
Retail Sales and Use Tax
Description
Machinery and tools; Tools and materials used in furniture manufacturing
Topic
Local Taxes Discussion
Property Subject to Tax
Date Issued
08-16-1994
August 2, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in response to your letter of June 21, 1994 in which you seek a ruling on the proper classification of **************(the Taxpayer).
FACTS
The Taxpayer purchases lumber and other raw materials to use in the manufacture of furniture. Based on the schedule included with your correspondence, this activity is performed using clamps, power sanders, drills and other assorted power and hand tools. Upon completion, the furniture is sold to one retail store which subsequently sells the furniture at retail.
The Taxpayer requests an evaluation of the Taxpayer's manufacturing activity for both state and local tax purposes.
DETERMINATION
State tax: Va. Code §58.1-609.3(2) exempts from the retail sales and use tax machinery, tools and supplies used directly in processing, manufacturing, refining, mining or converting products for sale or resale." This same statute also exempts from the tax industrial materials which enter into the production or become a component part of the finished product.
In addition, §58.1-602 provides that:
-
- The determination whether any manufacturing, mining, processing, refining or conversion activity is industrial in nature shall be made without regard to plant size ... or other factors relating principally to the size of the business. Further, "industrial in nature" shall include ... those businesses classified in codes ... 20 through 39 published in the Standard Industrial Classification Manual....
- The determination whether any manufacturing, mining, processing, refining or conversion activity is industrial in nature shall be made without regard to plant size ... or other factors relating principally to the size of the business. Further, "industrial in nature" shall include ... those businesses classified in codes ... 20 through 39 published in the Standard Industrial Classification Manual....
Local taxes: Va. Code § 58.1-203 authorizes the Tax Commissioner to issue regulations and rulings "relating to the interpretation and enforcement of the laws of this Commonwealth governing taxes administered by the Department." (emphasis added)
The taxes imposed by Chapter 35 of Title 58.1 of the Code of Virginia, including personal property, machinery and tools, and merchants' capital, are not administered by the department, but rather by the commissioner of the revenue of each Virginia locality. Accordingly, the department is unable to issue a ruling on the classification of a business for local property tax purposes, and the determination of the Taxpayer's classification rests with the locality.
As noted above, the "manufacturing" exemptions for purposes of the sales and use tax are available to manufacturing, as well as mining, processing, and conversion activities which are industrial in nature as specifically defined in §58.1-602. By comparison, the Code does not define "manufacturing" for local tax purposes. Therefore, local determinations usually depend on common law definitions, which are much narrower than the statutory exemptions for sales and use tax purposes.
Also, that a particular business is classified as a manufacturer under common law, whether certain personal property of the manufacturer qualifies as "machinery and tools" under §58.1-3507 is a factual determination to be made by the commissioner of the revenue on a case-by-case basis, based upon specific manufacturing operations and the particular application of items of personal property to those operations.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8172I
Rulings of the Tax Commissioner