Tax Type
Retail Sales and Use Tax
Description
Supplies used directly in manufacturing for sale or resale
Topic
Taxability of Persons and Transactions
Date Issued
09-30-1997
September 30, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear*********
This is in response to your letter of July 15, 1997 requesting a ruling on the application of the retail sales and use tax on certain tangible personal property rented by ****(collectively, the "Taxpayer").
FACTS
The Taxpayer operates food processing plants in Virginia. At these facilities the Taxpayer manufactures poultry and red meat food products for human consumption. The Taxpayer rents from its vendor laundered protective clothing (the "Garments"). The Garments at issue consist of smocks and lab coats which are worn by production personnel in the Taxpayer's processing areas. The processing area begins in the kill room, then continues through the cutting operations, the curing areas, and the packaging department. The Garments are not required, or even permitted, in administrative or distribution areas. You indicate that the Garments must be and are worn at all times by personnel while in the processing areas. Employees are prohibited from wearing the Garments outside the building or in bathrooms.
You indicate that the Garments act as protective coverings which reduce or eliminate impurities being exposed to the manufactured food. Further, federal and state regulations mandate that personnel wear the Garments at all times in the processing areas. The intent of this requirement is set out in United States Department of Agriculture regulations which provide that street clothes must be completely covered to eliminate the possibility of contaminating edible products.
You ask for a ruling that the Garments are exempt from the tax under the industrial manufacturing exemption set out in Code of Virginia § 58.1-609.3(2). In this regard, you maintain that the Garments are a necessary and integral part of quality control and are a part of the integrated manufacturing process. You further maintain that the Garments help guarantee the quality and integrity of the manufactured product.
RULING
Code of Virginia § 58.1-609.3(2) provides an exemption from the tax for supplies used directly in processing or manufacturing products for sale or resale. The terms "manufacturing" and "processing" are defined in Code of Virginia § 58.1-602 to include "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 also includes equipment and supplies used for production line testing and quality control." That same section defines "used directly" to mean "those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing ... process, but not including ancillary activities such as general maintenance or administration."
The department has previously determined that the industrial manufacturing exemption does apply to protective clothing when such clothing is worn by production personnel to protect the integrity of the manufactured product. The enclosed Public Document 86-124 (7/11/86) addresses special suits worn by production personnel to reduce contamination of semiconductor computer chips. It was determined that these suits were exempt production supplies. The same conclusion was made in Public Document 94-265 (8/26/94) regarding the use of rubber gloves worn by production personnel in a food processing plant.
Accordingly, l agree that the Garments are exempt from the tax when used by production personnel in the Taxpayer's processing areas. This would include lab coats worn by production area supervisors or production line quality control engineers. You will note, however, that the exemption does not extend to all Garments rented by the Taxpayer. Garments used outside of the processing areas are taxable. This would include, for example, Garments worn by distribution and shipping personnel. Also, you indicate that personnel are not allowed in the processing areas unless they are wearing the required Garments, and I assume this refers to all personnel. Nevertheless, Garments worn by nonproduction personnel (e.g., administration personnel, visitors, etc.) would not be exempt, even when worn in the processing areas. In this regard, the Garments worn by nonproduction personnel would not be used directly in the manufacturing process and would therefore remain taxable.
I trust that this information addresses your questions on the application of the tax to protective clothing. Please call******* in the department's Office of Tax Policy at ****** if you need additional assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12775I
Rulings of the Tax Commissioner