Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Liquid nitrogen storage tanks
Topic
Taxability of Persons and Transactions
Date Issued
09-05-1996
September 5, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear**************
This will reply to your letter of June 18, 1996 in which you request a ruling on the sales and use tax application to a storage tank used by *********(the "Taxpayer") to store product for resale as well as for further processing.
FACTS
The Taxpayer is a supplier of welding supplies and equipment. The Taxpayer is in the process of building a liquid air separation plant in Virginia. The plant qualifies as a manufacturing facility and enjoys the manufacturing and processing exemption afforded in Code of Virginia § 58.1-609.3(2). In addition to the actual air separation facility, the Taxpayer is also installing a liquid nitrogen storage tank at the plant site. The storage tank holds the liquid nitrogen until the liquid is removed for delivery or removed for further processing. Further processing is performed at other conversion locations owned by the Taxpayer. The Taxpayer is requesting a ruling on the retail sales and use tax application to the liquid nitrogen storage tank.
RULING
Code of Virginia § 58.1-609.3(2) provides a sales and use tax exemption for items of tangible personal property "used directly" in an industrial manufacturing process. Virginia Regulations (VR) 630-10-63.2 defines "used directly" as it applies to industrial manufacturers as those activities that are an integral part of the production of a product, including all steps of an integrated manufacturing process. This regulation goes on to provide that the integrated manufacturing process "includes the production line of a plant,... starting with the handling and storage of raw materials at the plant and continuing through the last step of production where products are finished or completed for sale and conveyed to a warehouse at the plant site...". Similar wording is found section C.2 of this same regulation where production is defined to "include the production line of the plant site starting with the handling and storage of raw material at the plant site and continuing through the last step of production where the product is finished or complete for sale and conveyed to a warehouse at the production site."
The item at issue in this ruling is a storage tank. The regulation cited above specifically states finished product "warehouses" at the production site are taxable. I find that due to the nature of the finished product in this ruling, liquid nitrogen, the storage tank at issue is analogous to a warehouse for purposes of the manufacturing exemption.
Another issue surrounding this ruling is the fact that a portion of the liquid nitrogen held in the storage tank undergoes further processing prior to being sold. The fact that the additional processing performed by the Taxpayer occurs at a different plant site from where the liquid nitrogen is being produced, renders the liquid nitrogen a finished product upon storage. For this reason, and based on the above referenced regulation, the department finds the storage tank to be analogous to a finished goods warehouse located at the plant site and therefore taxable.
If you should have any further questions, please contact********* Office of Tax Policy, at ************ .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11451K
Rulings of the Tax Commissioner