Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling or refining; Industrial processing exemptions
Topic
Taxability of Persons and Transactions
Date Issued
02-11-1997
February 11, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********************
In your letter of December 20, 1996, you seek correction of the sales and use tax audit assessment issued to *********(the Taxpayer).
FACTS
The Taxpayer is a manufacturer of foams and rubbers which are die cut or slit according to customer specifications. An audit for the period April 1992 through July 1996 resulted in an assessment of sales tax on untaxed sales of dies and use tax on untaxed purchases of supplies and equipment not qualifying for the industrial manufacturing exemption.
The Taxpayer takes exception to the sales tax assessed on specially made dies sold to customers and maintains that these dies qualify for the industrial manufacturing exemption since they are used by the Taxpayer directly in manufacturing parts sold to its customers.
DETERMINATION
This same issue was recently considered by the department in P. D. 96-324 (11/8/96), copy enclosed. In that case, sales of printing and cutting dies by a box manufacturer who used the dies in its manufacturing process but subsequently sold them to its customers were held to be taxable. Although the manufacturer could purchase the dies or the materials used to make the dies exempt of the tax, since it used them directly in manufacturing products for resale, subsequent sales of the dies by the manufacturer were held taxable because they constituted retail sales to customers who were not actually using the dies in an exempt manufacturing process or for some other exempt purpose. In the absence of an exemption, retail sales are taxable.
In the instant case, the dies at issue are sold to customers who are industrial manufacturers. It is my understanding, however, that these customers do not use the dies in their manufacturing processes. In fact, the customers did not present the Taxpayer with an exemption certificate (Form ST-11 ) indicating the dies were used directly in their industrial manufacturing process. Furthermore, although ownership of the dies is transferred to the customers at the time of sale, the Taxpayer retains or stores the dies on behalf of its customers for potential future use by the Taxpayer in manufacturing products for its customers. As the Taxpayer's customers are not the ones actually using the dies in an exempt manufacturing process, the industrial manufacturing exemption does not apply to those dies that are actually sold to such customers.
In these instances, no exemption certificate is applicable since the die is not used in the customer's manufacturing plant site and the Taxpayer maintains physical possession of the dies after the sale. Based on these facts, and absent an exemption to allow the Taxpayer's customers to make an exempt purchase of the dies at issue, the assessment of tax on these dies is proper.
Under separate cover, the Taxpayer will soon receive an updated bill******** for****** . Please send payment to the address listed on the bill, or to the attention of *********at the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within the next 30 days.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12021R
Rulings of the Tax Commissioner