Tax Type
Retail Sales and Use Tax
Description
Coal mining; Water trucks, plant lights; Audit sample
Topic
Property Subject to Tax
Date Issued
03-15-1994
March 15, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear**********
This is in reference to your application for correction of the sales and use tax audit assessment of************** and for the periods of June 1987 through May 1990 and March 1986 through May 1990, respectively. The following determination is based on information received as the result of the May 25, 1993 meeting between you and members of my staff and supplemental information faxed on March 7, 1994. Each audit, along with areas of contention, will be addressed separately below.
Va. Code §58.1-609(A)(3)(b) 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 Va. Code §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 (l984), 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.
*********************
For the sake of simplicity, I will list those items which we concede as exempt and list and briefly discuss items we feel are taxable.
Exempt Items Item#
Printer Paper 4
Converter - Ramsey Tipple 5
AC Line Protectors 7
Data Line Protectors 8
Ramsey Refuse 1 6, 214-219, 221-223,
235,236
Ceramic Tile 85, 101
American Case - Methanometer 101
CSE Spotter - Methanometer 111, 112, 113
Mortar Hoes 134
Prep Plant Support 144, 145
LP Gas - Used in Lab for Quality Control 155
Flow Gauge 159
Taxable Items Item #
Taxable Merchandise 3
Grease Pump 10, 13
Aluminum Plate - Powder Trucks 17, 18, 19, 20, 21
Service Meter 22
Sling Hook 25, 32, 36, 37, 38
Coolant Test Rit 31
Knife Blades 41, 60, 86, 89, 91, 93, 97
Come-A-Long 42, 47, 54, 56, 63, 64
Tie Wire 49, 103, 109
Railroad Jack 66, 163, 164
Railroad Crayon 74, 107
Sledge Hammer 125, 137, 140
Dirt Shovel 121, 126, 128, 139
Cable Cutters 123, 129, 141
Fire Extinguisher/Brackets 127, 130
Track Hammer - Rail Bender 162
Alemite Pump and Hose Reel 171
Impact Wrench 194
With the exception of taxable merchandise, aluminum plates, service meter, coolant test kit, and fire extinguisher/brackets, the remaining taxable items listed above fall in the category of tools used in general maintenance and repair. As provided in VR 630-10-65.2(A)(3)(e), copy enclosed, repair and maintenance is not mining and facilities, tools, supplies, machinery, and equipment used in performing repair and maintenance are subject to the tax. As for the service meter, coolant test kit, and fire extinguisher/bracket, these items appear to fall under the taxable category of "administration" which is set forth in VR 630-10-65.2(B)(9).
It is also requested that item # 3, taxable merchandise, be removed from the general purchases exception list and included under fixed assets. In other words, you feel such items are isolated purchases and should not be extrapolated over the entire audit period. As understood by this office, item # 3 included merchandise purchased for an employees picnic. It should be noted that the purpose of an audit sample is to obtain a general overview of a Taxpayer's purchasing practices and not to detail items within the sample period. While I realize the specific items included in item # 3 may not be recurring, any period under scrutiny will certainly contain some non-recurring items. To remove the taxable items contained in item # 3 from the sample period, would defeat the purpose for sampling in the first place, not to mention render the sample inaccurate.
With regard to the fixed asset exception list, it is noted that you are taking exception to the light plants which provide illumination at night during your strip mining operation. VR 630-10-65.2(B)(3) clearly imposes the tax on light fixtures, bulbs, and other illumination equipment, except when such illumination fixture is an integral part of the extraction equipment. As seen by members of my staff during a recent tour of your strip mining operation, the lights in-question are not a part of extraction equipment and are therefore taxable.
While I realize the above items may be necessary to the production process, and in some cases even required by federal or state law, the department takes the position such items are of indirect use to the actual mining process.
******************
As with***********I will set forth those items which we concede as being exempt and list and briefly discuss items we feel are taxable.
Exempt Items Item #
4600 Remote Emulation 30
1500 Watt Generator * 85
Parts - Powder Truck 98
* - Provided generator is producing power used to operate exempt machinery (Preponderance of use rule will apply).
Taxable Items Item #
Aqua Master Pump 3
Tarp - Tie Wire 6, 10, 53
Hoes/Dirt Shovels 9, 45, 49
Rope Clamps 11
Grease Guns 12, 83
Metal Catwalk 15, 16
Chain 18, 52
Parts - Water Truck 99, 100
Fire Extinguisher/Brackets 31, 32, 33, 36, 37, 39, 40,41, 42, 44, 46, 47, 48, 51, 54
Come-A-Long 50
Pull Cable 69, 70
Stihl Saw 84, 86, 87, 88, 90
Parts - Water Truck 99, 100
As set forth in the above discussion of the above taxable items, with the exception of the metal catwalk, fire extinguisher/brackets, and water truck parts, fall under the category of taxable repair and maintenance. While the metal catwalk may be necessary to provide access to exempt machinery or equipment, the department has consistently held catwalks to be taxable. As in fire extinguisher/brackets are taxable as administrative items use to prevent or control fires. In regard to the parts for the water trucks, it is our position that while the water trucks are necessary to keep the dust settled during the strip mining operation, these trucks are used indirectly in the actual mining process.
It is also noted that you are taking exception to plant lights and communication equipment held taxable on the fixed assets listing. As discussed in ******the plant lights are clearly taxable. With regard to the communication equipment, while it may be necessary and used for convenience purposes throughout the mining area, such equipment is in no way used directly in the mining process. The actual mining process may be carried on with or without such equipment.
Based on the above, the audits of ********* will be revised accordingly. Your letter of March 7, 1994 also included areas of contention concerning the audits ********and******These issues will be addressed under separate cover.
If you should have any further questions, please feel free to contact the department.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/4865K,4866K
Rulings of the Tax Commissioner