Tax Type
Retail Sales and Use Tax
Description
Manufacturing; Electric heated parts cleaner
Topic
Taxability of Persons and Transactions
Date Issued
09-05-1995
September 5, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear******************:
This will reply to your letter of October 26, 1994, in which you seek correction of a retail sales and use tax assessment issued to*********(the "Taxpayer"), for the period August 1989 through April 1993.
FACTS
The Taxpayer is a manufacturer of powder coatings. Powder coatings are used as a substitute for paint and are applied to electrostatically charged metal surfaces to produce an even coating much like a painted surface. Machinery used to manufacture the powder coatings is cleaned after each batch of a powder coating is produced. The cleaning process ensures that the next batch to be processed is not contaminated by the color or chemistry of the batch previously produced.
The Taxpayer was audited and assessed the tax on its purchase of an electric heated parts cleaner. The parts cleaner is used to clean removable tooling and components of production machinery which have come in contact with the powder coatings during manufacture. The parts cleaner consists of two agitating, heated tanks. The first tank uses a cleaning solution to remove the powder coating from the machinery parts and the second tank provides a hot water rinse for the parts. The cleaner is loaded and unloaded by production personnel and runs unattended.
A member of my staff previously determined that the Taxpayer's use of the parts cleaner was a general maintenance function and therefore, subject to the tax. However, the Taxpayer has submitted additional information regarding the use of the parts cleaner to the Department for consideration.
DETERMINATION
The Department has previously addressed a similar issue in P.D. 92-65 (May 11, 1992, copy enclosed) in which a food production facility that produced frozen dinners and specialty foods used sanitation chemicals to clean production and processing equipment. The Department ruled that the sanitization chemicals were an indispensable part of the quality control function of the production process. The daily cleaning and sanitizing operation was so specialized and closely related to the processing function that production could not take place unless the equipment was cleaned and sanitized.
Based upon a review of the additional information furnished, I find that the Taxpayer's situation is analogous to P.D. 92-65. The parts cleaner is used to clean equipment components after each batch of a particular powder coating is produced. The cleaning of the parts ensures the integrity of the product by preventing colors and chemicals from previously manufactured products from tainting the product being manufactured. The specialized maintenance performed by the Taxpayer plays a direct role in the production process, which could not take place without the use of machinery parts that are free from previously manufactured powder coatings. The frequency of cleaning is dependent upon the completion of each batch in production and is an integral part of the production process.
Accordingly, the electric heated parts cleaner will be removed from the audit assessment. The Department's records indicate the remainder of the assessment has been paid in full. Any future purchases of parts cleaners used in the same manner may be made exempt of the tax by issuing your supplier a Form ST-11 exemption certificate.
If you have any questions concerning this letter, you may contact***********in the Office of Tax Policy at***************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8718S
Enclosure (1)
Rulings of the Tax Commissioner