Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Fabricated steel
Topic
Taxability of Persons and Transactions
Date Issued
08-23-1994
August 23, 1994
Re: Request for Ruling: Sales and Use Tax
Dear*********
This is in reply to your letter of September 2, 1993 in which you request, on behalf of your client (the Taxpayer), a ruling as to the sales and use tax application to fabricated tangible personal property for resale and also for use in fulfilling real property contracts.
FACTS
The Taxpayer is a steel fabricator. In some instances the Taxpayer fabricates steel which will be consumed by the Taxpayer in fulfilling real property contracts. In other instances the fabricated steel will be sold to other contractors. The Taxpayer cannot determine at this time what his primary function will be. The Taxpayer is requesting a ruling as to the sales and use tax application to his operation.
RULING
Virginia Regulation (VR) 630-10-37 addresses fabrication and states, in part, the following:
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- A person regularly engaged in the fabrication of tangible personal property for sale at retail must collect and pay the tax on the sales price of the property. If the fabricator converts some of the property to his own use, he must pay the tax based on the fabricated cost (i.e., the cost to him) computed by totaling the cost of materials, labor and overhead charged to work in process. Freight inward to the plant on the materials is treated as an element of the cost of materials.
A fabricator who fabricates tangible personal property principally or primarily for his own use or consumption and not principally or primarily for sale or resale (e.g., as a contractor) is not entitled to any of the production exemptions set out in 630-10-63. (Emphasis added.)
- A person regularly engaged in the fabrication of tangible personal property for sale at retail must collect and pay the tax on the sales price of the property. If the fabricator converts some of the property to his own use, he must pay the tax based on the fabricated cost (i.e., the cost to him) computed by totaling the cost of materials, labor and overhead charged to work in process. Freight inward to the plant on the materials is treated as an element of the cost of materials.
The Taxpayer may be entitled to the production exemption set forth in VR 630-10-63 (copy enclosed) provided he is primarily (over 50%) fabricating for sale or resale, and not for his own consumption. Provided the Taxpayer does enjoy the industrial manufacturing and processing exemption set forth in VR 630-10-63, the following items listed in your letter will be exempt.
- Repair parts for welding machines (repair tools are taxable)
- Bandsaw blades used to cut steel
- Stargon, oxygen, carbon dioxide used to weld Parts for welding machine
- Regulators used on welding machines
- Ground wires and clamps used on welders
- Wire brushes, sanding and grind disk used to smooth welds on the fabricated steel
The remainder of the items listed in your letter, such as blueprints supplies, architectural drawings, and paint respirators and filters would be subject to the tax. I would also like to point out that the preponderance of use rule set forth in VR 630-10-63(D) is only applicable when a single piece of equipment is used in both a taxable and exempt manner. Fungible items, such as wire, parts, and fuel, do not qualify for the preponderance of use exemption, but may be prorated based on taxable/exempt use.
If you should have any further questions, please feel free to contact the department.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner