Document Number
95-89
Tax Type
Retail Sales and Use Tax
Description
Manufacturing; Lumber processing
Topic
Taxability of Persons and Transactions
Date Issued
04-28-1995
April 28, 1995



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


Dear***********

This is in response to your letter of March 3, 1995 in which you seek correction of a sales and use tax assessment issued to**************(the Taxpayer).
FACTS

The Taxpayer, which operates as a sawmill, is deemed to be an industrial manufacturer pursuant to Code of Virginia § 58.1-609.3(2). An audit for the period January 1992 through November 1994 resulted is an assessment for untaxed sales and untaxed purchases of various items. The only transaction under protest is the tax assessed on the purchase of a metal detector which is used to detect metal objects in logs.

The metal detector is used on the Taxpayer's production line, and it examines every log before the log is sawed. When metal in the log is detected, a signal alerts the operator to stop the conveyor line and either immediately remove the metal or move the log from the production line so the metal could be extracted at a later time.

The Taxpayer indicates that its customers, nearly all of whom remanufacture lumber, require that the lumber provided by the Taxpayer be free of metal objects. Accordingly, the metal detector allows the Taxpayer to exclude from its manufacturing process lumber which contains these unwanted metal objects. Therefore, the Taxpayer maintains that the metal detector is used directly in the manufacturing process. However, I understand that by warning the operator of hidden metal objects, the metal detector also helps protect the Taxpayer's manufacturing equipment.
RULING

Code of Virginia §58.1-609.3(2) provides an exemption for machinery and tools used directly in manufacturing or processing products for sale or resale. Pursuant to §58.1-602, "manufacturing" includes the production line of the plant starting with the handling and storage of raw materials through the last step of production and includes production line testing and quality control. That same statute defines "used directly" to mean "those activities which are an integral part of the production of a product," but not including general maintenance or administration.

The metal detector is used in an exempt capacity on the production line for production line testing of raw material to ensure a more marketable product. Such use is an integral part of the production process. Accordingly, the exemption applies to the metal detector used by the Taxpayer, and this item will be removed from the assessment.

If you have any additional questions regarding this issue, please contact****in my Office of Tax Policy at***********.
                        • Sincerely,


                          Danny M. Payne
                          Tax Commissioner



OTP/9472I

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46