Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Rented video tape containers subject to tax
Topic
Taxability of Persons and Transactions
Date Issued
07-29-1997
July 29, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in reply to your letter of June 3, 1997, in which you seek a correction of the department's sales and use tax audit assessment issued to ********(the "Taxpayer"), for the period January 1994 through March 1997. I note that the Taxpayer has paid the assessment in full.
FACTS
The Taxpayer's business operations primarily involve the rental of video tapes and VCR's. Rental tapes are enclosed in protective plastic containers with information labels and stickers emblazoned upon both the video cassettes and the plastic containers. The department's audit held taxable the labels, stickers and plastic containers on the basis that the Taxpayer was the user and consumer of these items. The Taxpayer contends that the items are a part of a total video rental package and that the property is not subject to the tax. The Taxpayer requests a refund of the tax and interest associated with the items in question.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-400, copy enclosed, provides that "Packaging materials may be purchased tax exempt if the items are marketed with the product being sold and become the property of the purchaser." (Emphasis added). Additionally, this same section specifically adds that purchases of "packaging materials which do not become the property of the purchaser are subject to the tax." (Emphasis added).
In applying the foregoing, l note that the product (video tape) is not sold to the end user but rather rented to the customer for home entertainment. At the close of the rental period the video tapes and plastic carriers, which have affixed upon them the labels and stickers, are returned. The materials in question, while used to protect the product and to advise the customer of information and direction in the use of the product, are not used in conjunction with a sale of tangible personal property as contemplated by VAC 10-210-400.
Title 23 VAC 10-210-920 exempts "materials, containers, labels, sacks, cans, boxes, drums or bags for future use for packaging tangible personal property for shipment or sale (whether returnable or nonreturnable)" (emphasis added) when used or consumed by an industrial manufacturer or processor of products for sale or resale.
In order for the exemption set forth in VAC 10-210-920 to apply, a business entity must be deemed an "industrial manufacturer." This section provides that:
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- The term "industrial manufacturer" as used herein shall include but not be limited to businesses classified or substantially similar to other businesses classified in codes 20 through 39 of the Standard Industrial Classification (hereinafter "SIC") Manual published by the U.S. Department of Commerce.
In reviewing the 1987 edition of the SIC Manual, the Taxpayer's activities do not fall within major group codes 20 through 39, but rather within major group 78, and is classified as code 7841 which is designated as establishments primarily engaged in renting recorded video tapes and disks to the general public. Accordingly, the materials used by the Taxpayer in conjunction with the rental of video tapes are properly included in the department's audit. I note that the department's auditor, in presenting a copy of the department's audit, gave the Taxpayer a copy of Public Document 93-3 (01/06/93) which also details the department's longstanding position with regard to such materials.
Based on the information before me, l do not find sufficient cause for allowing any adjustment of the department's audit. Accordingly, the department's assessment is correct as assessed, and I must deny the Taxpayer's request for refund.
If you should have any questions regarding this matter, please contact*********of the department's Office of Tax Policy at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12697Q
Rulings of the Tax Commissioner