Tax Type
Retail Sales and Use Tax
Description
Mining and manufacturing
Topic
Exemptions
Property Subject to Tax
Date Issued
12-09-1994
December 9, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear******************
This will reply to your letter of March 7, 1994 seeking correction of the sales and use tax assessments of **** (the "Parent") for the period of December, 1987 through December, 1990. Your appeal relates to the audits of three separate subsidiaries of the Parent and I will address each subsidiary separately below.
Code of Virginia §58.1-609.3.2 provides a sales and use tax exemption for, "machinery or tools or repair parts therefor or replacement thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining, or conversion of products for sale or resale". (Emphasis added). "Used directly" is defined in Code of Virginia §58.1 -602 as follows:
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- "Used directly", when used in relation to manufacturing, processing, refining, or conversion, refers to those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing or mining process, but not including ancillary activities such as general maintenance or administration. When used in relation to mining, it shall refer to the activities specified above, and in addition, any reclamation activities of the land previously mined by the mining company required by state or federal law.
In Commonwealth. Dep't. of Taxation v. Wellmore Coal Corp.. 228 Va. 149, 320 S.E.2d 509 (1984), the Virginia Supreme Court held that the exemption of tangible personal property from taxation shall be strictly construed against the taxpayer when a statute is susceptible of two constructions, one granting an exemption and the other not granting it. Therefore, in cases where there is any doubt as to the tax application, the doubt is resolved against the one claiming the exemption.
Keeping the above in mind, I will address the areas of contention below.
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Exempt Items Item #
Radiator Hose 314
Filter 409
Taxable Item #
Pallets Various
Wipers Various
Tires 353,354
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As provided by the auditor, the pallets held taxable in the audit are based on the net amount after credit was taken into account. The wipers in question are used for routine maintenance and are not considered to be used directly in mining and mineral processing activities. As for the tires, the Taxpayer claims that such purchases were non-recurring as a result of strikes affecting the coal companies. Due to the fact that the purchase of tires may have been uncharacteristically high during the strike, I will agree to remove the tires from the sample and include them in the detail portion of the audit. There are several items the Taxpayer claims were capital items, i.e., backhoe bucket, skid mounted tanks, and drums, which were included in the audit sample as expense purchases. Provided the Taxpayer can show that these items were capitalized, these will be removed from the sample and itemized under fixed assets. The final items include coaxial cable, radios, and light plants held taxable as items used in the preparation plant and the strip mine operation. The Taxpayer claims all such items were used in the deep mine operation and are therefore exempt. Here again, conditional upon the Taxpayer providing additional information to substantiate their claim, such items will be removed.
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There are three areas the Taxpayer is taking exception to in this audit. The refuse area has since been certified by the Department of Environmental Quality as a certified pollution control facility and as such, items used in this area have been removed from the audit. The Taxpayer also claims that fuel used in the Clean Coal area involves further processing of the coal and should be prorated accordingly. Upon verification, the audit will be adjusted. Finally, as set forth above, the department will agree to remove the non-recurring purchases of tires from the sample and detail them for purposes of this audit.
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As provided in the discussion above in*******, wiper rags are used in the maintenance function which is considered indirect use and thus subject to the tax. As in the situation in *****above, the Taxpayer claims fuel used in the clean coal area involves further processing of the coal and is therefore exempt. As provided above, upon verification that the clean coal is further processed, the audit will be adjusted accordingly.
A representative from our ***** District Office will contact the Taxpayer and make the appropriate revisions as set forth above. If you should have any further questions, please feel free to contact the department.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8310K
Rulings of the Tax Commissioner