Document Number
Tax Type
Retail Sales and Use Tax
Manufacturing, processing, assembling, or refining; Embroidering machine
Taxability of Persons and Transactions
Date Issued
March 18, 1994

Re: §58.1-1821 Application: Retail Sales and Use Tax


This will reply to your letter of July 22, 1992 in which you seek correction of sales and use tax assessed to ********* (the Taxpayer) as the result of an audit for the period October, 1989 through August, 1991.


The Taxpayer provides custom embroidery and silk-screening on garments and apparel products for sale or resale directly to end consumers and to industry customers. The Taxpayer generally obtains the apparel for its customers, although in some instances garments are provided by the customer. As the result of an audit, the Taxpayer was assessed tax on a six-head, computer-operated embroidering machine. The Taxpayer protests the application of tax on the basis that its operation is industrial in nature and as such, qualifies for exemption under Va. Code §58.1-608(A)(3)(b).


Va. Code §58.1-608(A)(3)(b) provides an exemption from the sales and use tax for machinery, tools, and other items used directly in the manufacture of tangible personal property for sale or resale in the industrial sense. This interpretation was substantiated by the Virginia Supreme Court, in Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E. 2d 511 (1973), which held that the cited statute and regulation were intended "to provide exemption for machinery and tools used in ... manufacturing ...products for sale or resale only in the industrial sense." And, Va. Code §58.1-602 provides, in pertinent part, that the term "industrial in nature" shall include all businesses classified in "codes 10 through 14 and 20 through 39 of the Standard Industrial classification (SIC) Manual."

Generally, businesses engaged in manufacturing are classified under SIC codes 20 through 39 and are involved in transforming raw materials into useful and marketable products within a factory, plant or mill environment using power driven machinery and materials handling equipment. (See SIC manual, page 67)

The Taxpayer contends that its activities are comparable to those of businesses classified under Major Group 23, Apparel and Other Finished Products Made from Fabrics and Similar Materials of the SIC codes. Specifically, sub-group 2395 includes businesses which provide embroideries and embroidery products and stipulates "establishments primarily engaged in pleating, decorative and novelty stitching, and tucking for the trade" which is interpreted as businesses related to this industry. The Taxpayer takes exception to the auditor's conclusion that its business operation does not manufacture textile products, but merely customizes products, such as hats, shirts, aprons, sweaters and jackets by embroidering or screen printing a logo, emblem or name on the finished garment.

A review of the Taxpayer's operations and the SIC Manual reveals that the Taxpayer's business is more accurately classified under SIC Code 7389 - Business Services. Not Elsewhere Classified. This sub-group specifically includes businesses engaged in embroidering of advertising on shirts, etc. The application of logos, emblems etc. to shirts, hats, sweaters, jackets and other garments clearly falls within the parameters of the above grouping. Although the Taxpayer performs work for "industry" customers, SIC Code 7389 more accurately describes the Taxpayer's predominant activities as the Taxpayer is primarily engaged in sales to end users, whose orders are generally of a customized nature and are relatively small in number. As such, the Taxpayer does not fall within those SIC codes prescribed for purposes of being designated as industrial in nature and therefore does not qualify for the manufacturing exemption.

The department deems embroiderers, who embroider on customer owned articles, to be service providers, regardless that these businesses use the same type of machines used by the Taxpayer. The only distinction in this case is that the Taxpayer generally purchases the articles on behalf of its customers, and it is my opinion that this distinction is insufficient in scope to warrant designation of the Taxpayer as a manufacturer for purposes of the application of the sales and use tax.

My decision is governed by the department's policy with respect to exemption from the sales and use tax as dictated by the rule of strict construction established by the Virginia courts. The Virginia Supreme Court has consistently held that "exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption." See Golden Skillet Corporation.

Accordingly, I find no basis for adjustment to the assessment. As of the date of this appeal, the outstanding assessment was interest). If this amount is paid within the next 30 days, I will waive the interest that has accrued since the appeal was filed. The payment may be directed to at Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23220-1880.


Danny M. Payne
Acting Tax Commissioner


Last Updated 08/25/2014 16:46