Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Equipment used by sign and banner business.
Topic
Taxability of Persons and Transactions
Date Issued
04-22-1998
April 22, 1998
Dear********:
This is in response to your letter seeking correction of the retail sales and use tax assessment issued to ***** (the Taxpayer) as a result of an audit.
FACTS
The Taxpayer fabricates signs and banners for the wholesale and retail market. A small part of the Taxpayer's business requires the installation of signs as part of the realty. n audit for the period November 1993 through July 1995 resulted in the assessment of sales tax on unremitted sales tax collected and use tax on untaxed purchases of tangible personal property used in its operations.
The Taxpayer does not dispute the sales tax portion of the assessment and the use tax assessed on expensed purchases included in the audit. However, the Taxpayer takes exception to the use tax assessed on three assets (i.e., a computer plotter, a colorscan, and a printer) and maintains that such items qualify for the industrial manufacturing exemption as used directly and principally in manufacturing signs for sale or resale.
DETERMINATION
Code of Virginia Sec. 58.1-609.3(2) provides an exemption from the sales and use tax for machinery, tools, and other items used directly in the manufacture of tangible personal property for sale or resale in the industrial sense. This interpretation was substantiated by the Virginia Supreme Court in Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E. 2d 511 (1973), which held that the manufacturing exemption was intended to "provide exemption for machinery and tools used in . . . manufacturing . . . products for sale or resale only in the industrial sense. Also, Code of Virginia Sec. 58.1-602 provides, in part, that the term "industrial in nature' shall include all businesses classified in "codes 10 through 14 and 20 through 39 of the Standard Industrial Classification (SIC) Manual.'
It is my understanding that the Taxpayer operates a retail business and that the majority of the Taxpayer's sales are to end users, i.e., retail customers. Accordingly, I must note that the SIC Manual and the manufacturing regulation require that the production activities of industrial manufacturers to be usually carried on for the wholesale market or to order for industrial users, rather than for direct sale to domestic consumers. In determining whether the equipment used by embroidery and silk screening businesses qualified for the industrial manufacturing exemption, the department has previously ruled that the exemption was not available since the predominant activity of such businesses was the sale of products to end users. See Public Documents (P.D.) 96-386 (12/23/96) and 94-71 (3/18/94); copies enclosed.
Based on the foregoing and a review of the audit report, it appears that the Taxpayer's operations are most appropriately classified under SIC code #5999 which lists retail banner shops and similar businesses under this retail trade classification. As such, the Taxpayer does not fall within those SIC codes prescribed for purposes of being designated as industrial in nature.
Based on all of the available facts presented, I must conclude that the Taxpayer does not completely satisfy the industrial in nature requirement. Accordingly, the manufacturing exemption is not available. However, if the Taxpayer has additional information to establish that its primary business should not be classified under SIC code #5999, it should provide such information to the department within the next 45 days.
If additional information is not received within the allotted time, the assessment will be deemed correct as issued, and the Taxpayer will receive an updated bill for the outstanding liabilities. If the Taxpayer wishes to preclude further interest charges, the outstanding liabilities should be paid within the next 45 days.
If you have any questions about this determination, please contact ***** my tax policy staff at *****.
Dear********:
This is in response to your letter seeking correction of the retail sales and use tax assessment issued to ***** (the Taxpayer) as a result of an audit.
FACTS
The Taxpayer fabricates signs and banners for the wholesale and retail market. A small part of the Taxpayer's business requires the installation of signs as part of the realty. n audit for the period November 1993 through July 1995 resulted in the assessment of sales tax on unremitted sales tax collected and use tax on untaxed purchases of tangible personal property used in its operations.
The Taxpayer does not dispute the sales tax portion of the assessment and the use tax assessed on expensed purchases included in the audit. However, the Taxpayer takes exception to the use tax assessed on three assets (i.e., a computer plotter, a colorscan, and a printer) and maintains that such items qualify for the industrial manufacturing exemption as used directly and principally in manufacturing signs for sale or resale.
DETERMINATION
Code of Virginia Sec. 58.1-609.3(2) provides an exemption from the sales and use tax for machinery, tools, and other items used directly in the manufacture of tangible personal property for sale or resale in the industrial sense. This interpretation was substantiated by the Virginia Supreme Court in Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E. 2d 511 (1973), which held that the manufacturing exemption was intended to "provide exemption for machinery and tools used in . . . manufacturing . . . products for sale or resale only in the industrial sense. Also, Code of Virginia Sec. 58.1-602 provides, in part, that the term "industrial in nature' shall include all businesses classified in "codes 10 through 14 and 20 through 39 of the Standard Industrial Classification (SIC) Manual.'
It is my understanding that the Taxpayer operates a retail business and that the majority of the Taxpayer's sales are to end users, i.e., retail customers. Accordingly, I must note that the SIC Manual and the manufacturing regulation require that the production activities of industrial manufacturers to be usually carried on for the wholesale market or to order for industrial users, rather than for direct sale to domestic consumers. In determining whether the equipment used by embroidery and silk screening businesses qualified for the industrial manufacturing exemption, the department has previously ruled that the exemption was not available since the predominant activity of such businesses was the sale of products to end users. See Public Documents (P.D.) 96-386 (12/23/96) and 94-71 (3/18/94); copies enclosed.
Based on the foregoing and a review of the audit report, it appears that the Taxpayer's operations are most appropriately classified under SIC code #5999 which lists retail banner shops and similar businesses under this retail trade classification. As such, the Taxpayer does not fall within those SIC codes prescribed for purposes of being designated as industrial in nature.
Based on all of the available facts presented, I must conclude that the Taxpayer does not completely satisfy the industrial in nature requirement. Accordingly, the manufacturing exemption is not available. However, if the Taxpayer has additional information to establish that its primary business should not be classified under SIC code #5999, it should provide such information to the department within the next 45 days.
If additional information is not received within the allotted time, the assessment will be deemed correct as issued, and the Taxpayer will receive an updated bill for the outstanding liabilities. If the Taxpayer wishes to preclude further interest charges, the outstanding liabilities should be paid within the next 45 days.
If you have any questions about this determination, please contact ***** my tax policy staff at *****.
Rulings of the Tax Commissioner