Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; "Used directly'
Topic
Taxability of Persons and Transactions
Date Issued
08-29-1997
August 29, 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 January 1995 through December 1996.
FACTS
The Taxpayer operates a stone processing facility. At issue is the tax assessed on a corrugated metal pipe used in the crushing plant operation. The corrugated metal pipe is partially buried in the ground on an angle. Concrete is poured in the corrugated pipe to secure the pipe to the ground and also serves as a platform for the mounting of the conveyor system. On top of the corrugated pipe are three feeder openings in which shaker machines are mounted. The shaker machines feed the ungraded stone in an even and continuous manner onto the conveyor belt that is located inside the corrugated pipe. The conveyor belt then moves the stone to the various screens which grade the stone as to size. The Taxpayer takes the position that the corrugated metal pipe is part of the processing equipment and exempt from tax.
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... processing, manufacturing, refining... products for sale or resale." The term "used directly" is defined in Code of Virginia § 58.1-602 as "those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing or mining process, but not including ancillary activities such as general maintenance and administration."
Title 23 of the Virginia Administrative Code (VAC) 10-210-920(B)2 indicates that in order for property to be used directly, it must be indispensable to the actual production of products for sale and it must be an immediate part of the production process. The regulation further provides that "convenient or facilitative items, such as fuel storage tanks, platforms, structural steel, grating, equipment supports, special flooring, etc., or items which are essential to the operation of a business but not an immediate part of actual production, are not used directly in manufacturing and processing even though such items may be directly attached to exempt production machinery."
This regulation goes on to state that "steel or similar supports which are a component part of exempt production machinery and which do not become permanently affixed to realty are not subject to the tax. However, concrete floors or foundations on which such supports rest or to which machinery is bolted, and structures housing machinery are not used directly in manufacturing and processing and are subject to the tax." (Emphasis added)
Based on the above, l cannot agree that the corrugated metal pipe qualifies for the exemption as being used directly in the manufacturing process. While the corrugated pipe may be essential to the processing operation, it is not an immediate part of the actual production process. Rather, the corrugated steel pipe only serves to protect and support exempt processing machinery and therefore is subject to the tax .
This determination is consistent with the ruling in Public Document 82-183 (12/14/82), copy enclosed. In that case, the department ruled that the corrugated steel tubing and concrete foundation on which a conveyor system rested was not used directly in the coal processing operation, but only served to protect and support the conveyor system. The department found the corrugated tubing and concrete foundation to be analogous to a manufacturing plant in which the walls, floor, and roof are essential to the process inasmuch as they support and protect the manufacturing machinery, but are hot an immediate part of the process.
Accordingly, l find that the corrugated pipe was correctly assessed in the audit. The Taxpayer will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest.
If you should have any questions regarding this determination, you may contact *****in the Office of Tax Policy at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12702T
Rulings of the Tax Commissioner