Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Dispensers supplied by manufacturer
Topic
Taxability of Persons and Transactions
Date Issued
01-19-1997
January 20, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This will reply to your letter in which you seek correction of the retail sales and use tax audit of your client, ********(the "Taxpayer"), for the period of July 1993 through March 1996.
FACTS
The Taxpayer is an industrial manufacturer of commercial cleaning products. Due to the hazardous nature of the product manufactured, the Taxpayer installs "dispensers" at their customers location for use by the customer in handling the cleaner. The Taxpayer provides the dispensers to their customers, at no charge, in connection with the sale of their product. The Taxpayer maintains ownership of the dispensers. Should the customer cease using the Taxpayer's product, the Taxpayer will remove the dispenser and the dispenser will be used at another location. The auditor assessed tax on the dispenser as being a part of the Taxpayer's distribution function. The Taxpayer feels these dispensers are a part of the manufacturing process and are exempt from the tax. The Taxpayer's argument rests on the belief that the "single site" requirement in the manufacturing exemption is too narrowly construed.
DETERMINATION
Code of Virginia § 58.1-609.3.2 provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefore or replacement thereof, fuel, power, energy, or supplies, used directly in... manufacturing... products for sale or resale." The term "use directly" is defined in Code of Virginia § 58.1-602 as "those activities which are an integral part of the production of a product,... but not including ancillary activities such as general maintenance and administration".
In interpreting the above statutory exemption, Virginia Regulation (VR) 630-10-63.C(2), copy enclosed, sets forth those activities which constitute "production" and states the following:
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- "Production" includes the production line of the plant starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where the product is finished or completed for sale and conveyed to a warehouse at the Production site. (Emphasis added).
Based on the information you have provided, the commercial cleaning product produced by the Taxpayer is completed and ready for sale at the time it leaves the production site. The dispensers in question are used away from the production plant site and are strictly used in the Taxpayer's distribution function.
VR 630-10-63.C(3) addresses distribution activities and states the following:
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- Distribution is the transport or conveyance of products after the completion of production and is not part of manufacturing or processing. Distribution includes the storage of a product subsequent to its production (other than storage at the plant site) and the actual transport of the product for sale. All tangible personal property used to convey, transport, handle, store, market or display finished products is taxable. (Emphasis added).
Based on all the information provided in your letter and the auditors comments, I must conclude that the dispensers in question are solely used to handle and store finished product at the customer's location. For this reason, the department finds no basis for revising the audit.
If you should have any questions, please contact ******* Office of Tax Policy, at***********
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11656K
Rulings of the Tax Commissioner