Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Quality control equipment
Topic
Taxability of Persons and Transactions
Date Issued
10-17-1995
October 17, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This will reply to your letter of March 27, 1995 in which you seek a correction of a retail sales and use tax assessment on behalf of******************(the "Taxpayer") for the period beginning January 1990 through July 1993.
FACTS
The Taxpayer produces automotive components for resale to various automotive manufacturers. An audit for the period January 1990 through July 1993 resulted in an assessment for the Taxpayer's failure to pay tax on purchases of two pieces of equipment, a temperature/humidity chamber and a fogging tester. The auditor held that the equipment does not qualify for the manufacturing exemption because it is not used directly in the manufacturing process, but rather is used in post-production testing. You maintain that the equipment qualifies for the manufacturing exemption because it is used in production line testing for quality control purposes and to insure products meet or exceed manufacturing specifications.
DETERMINATION
Code of Virginia § 58.1-609.3(2) provides an exemption from the sales and use tax for equipment used directly in manufacturing products for sale or resale. Code of Virginia § 58.1-602 includes equipment and supplies used directly in production line quality control within the scope of the manufacturing exemption.
The auditor believed the equipment at issue is used in post-production testing, an activity which does not qualify for the manufacturing exemption. Information provided subsequent to the audit substantiates the Taxpayer's position that the equipment is used to test products for quality control purposes on the production line and to determine whether the products meet contract specifications. Accordingly, the temperature/humidity chamber and the fogging tester used in the testing of the finished product qualify for the manufacturing exemption.
The department will issue a refund to the Taxpayer for the tax paid on the equipment *****, plus interest. If you have any questions regarding this matter, you may contact ******* at***************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9694F
Rulings of the Tax Commissioner