Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Fabrication; .
Topic
Taxability of Persons and Transactions
Date Issued
04-08-1997
April 8, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter in which you seek correction of a sales and use tax assessment issued to ********** (the Taxpayer) for the period September 1993 through July 1996.
FACTS
The Taxpayer's primary operation is the manufacturing of steel for sale. In addition, the Taxpayer is engaged in the fabrication of steel and miscellaneous welding for customers. The Taxpayer was audited and held liable for the tax on labor charges associated with the fabrication of tangible personal property.
The Taxpayer is taking exception to the taxing of fabrication labor and maintains that the protested transactions constitute exempt labor charges for the remodeling of customer owned materials. The Taxpayer's contention is that the labor charges in connection with the remodeling of tangible personal property is similar to exempt labor charges for welding services.
DETERMINATION
Title 23 of the Virginia Administration Code (VAC) 10-210-560 provides that "An operation which changes the form or state of tangible personal property is fabrication. Fabrication is distinguished from repair which is an operation that restores a used or worn piece of tangible personal property...The tax applies to the total charge for the fabrication of tangible personal property on a special order for a consideration. including labor, even if charges for labor are separately stated...." The regulation further provides that "The tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work. For example, a tailor who makes an article of wearing apparel from materials furnished by the customer must collect and pay the tax on the charge for making the apparel." (Emphasis added)
In this case, the Taxpayer charges its customers a fee to cut, bend, and drill steel according to the customers specifications and drawings. As provided in the regulation, such operation which changes the form or state of tangible personal property is fabrication. Further, in a case that is analogous to the Taxpayer's, the department ruled that the cutting or shaping of lumber for customers was deemed fabrication and subject to the tax on the total charge for the fabrication including labor, even if charges for labor are separately stated. See the enclosed Public Document 86--242 (11/28/86).
While the Taxpayer contends that the contested labor charges are similar to its charges for welding services, it is my understanding the labor charged in connection with the Taxpayer's welding services is for the repair of tangible personal property. In this case, the labor charges included in the assessment are in connection with the fabrication of tangible personal property and therefore subject to the tax.
Based on the foregoing, I find no basis for adjusting the assessment. I understand that the assessment has been paid in full. If you have any further questions regarding this determination, please contact *****of the department's Office of Tax Policy at******** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12008T
Rulings of the Tax Commissioner