Tax Type
Retail Sales and Use Tax
Description
Manufacturing exemption, Co-generation equipment
Topic
Exemptions
Date Issued
10-13-1998
October 13, 1998
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This will reply to your letter of August 20, 1998, in which you submit a ruling request regarding the application of the sales and use tax to certain equipment used by ***** (the "Taxpayer').
FACTS
The Taxpayer is in the business of producing kiln-dried lumber. The Taxpayer is purchasing co-generation equipment to convert steam to electricity. The electricity it produces will be used as a power source for exempt production machinery. The co-generation equipment consists of a generator and a turbine. At times, the co-generation equipment will produce more electricity than needed to efficiently run the production machinery. The Taxpayer is considering selling the excess electricity to an electrical power company. You request a ruling as to the application of the sales and use tax to the co-generation equipment.
RULING
Code of Virginia Sec. 58.1-609.3(2) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacement thereof, fuel, power, energy, or supplies, use directly in ... manufacturing ... products for sale or resale.' The term "used directly' is defined in Code of Virginia Sec. 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.' (Emphasis added).
Title 23 of the Virginia Administrative Code (VAC) 10-210-920.B.2, copy enclosed, expands on the definition of "used directly' as it relates to industrial manufacturing and processing, and further defines the "integrated manufacturing process' as follows:
Second, the equipment may be used to produce electricity for resale to electric utility companies. In this case, the manufacturing exemption is available for equipment used in the production of a product for sale or resale, e g., excess electricity being sold to electric companies. Therefore, this use of the co-generation equipment would also qualify for the manufacturing exemption.
If you should have any questions regarding this matter, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17185K
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This will reply to your letter of August 20, 1998, in which you submit a ruling request regarding the application of the sales and use tax to certain equipment used by ***** (the "Taxpayer').
FACTS
The Taxpayer is in the business of producing kiln-dried lumber. The Taxpayer is purchasing co-generation equipment to convert steam to electricity. The electricity it produces will be used as a power source for exempt production machinery. The co-generation equipment consists of a generator and a turbine. At times, the co-generation equipment will produce more electricity than needed to efficiently run the production machinery. The Taxpayer is considering selling the excess electricity to an electrical power company. You request a ruling as to the application of the sales and use tax to the co-generation equipment.
RULING
Code of Virginia Sec. 58.1-609.3(2) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacement thereof, fuel, power, energy, or supplies, use directly in ... manufacturing ... products for sale or resale.' The term "used directly' is defined in Code of Virginia Sec. 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.' (Emphasis added).
Title 23 of the Virginia Administrative Code (VAC) 10-210-920.B.2, copy enclosed, expands on the definition of "used directly' as it relates to industrial manufacturing and processing, and further defines the "integrated manufacturing process' as follows:
-
- The concept of the integrated manufacturing process includes within the scope of the manufacturing and processing exemption machinery, tools, repair parts, fuel, power, energy and supplies used directly to manufacture or process fuel, power or energy used to run exempt production machinery or to manufacture exempt production machinery, tools or supplies. In essence. an exemption is available for subprocessing activities which produce tangible personal property used directly in the main manufacturing or processing activity. (Emphasis added).
- The concept of the integrated manufacturing process includes within the scope of the manufacturing and processing exemption machinery, tools, repair parts, fuel, power, energy and supplies used directly to manufacture or process fuel, power or energy used to run exempt production machinery or to manufacture exempt production machinery, tools or supplies. In essence. an exemption is available for subprocessing activities which produce tangible personal property used directly in the main manufacturing or processing activity. (Emphasis added).
Second, the equipment may be used to produce electricity for resale to electric utility companies. In this case, the manufacturing exemption is available for equipment used in the production of a product for sale or resale, e g., excess electricity being sold to electric companies. Therefore, this use of the co-generation equipment would also qualify for the manufacturing exemption.
If you should have any questions regarding this matter, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17185K
Rulings of the Tax Commissioner