Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments, rock quarry business and stone crushing operation
Topic
Collection of Delinquent Tax
Date Issued
08-30-1999
August 30, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter seeking correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer') for the period of December 1994 through January 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the rock quarry business. As a part of the quarry business, the Taxpayer has set up a stone crushing operation which includes a rock box, stone crusher, control house, conveyors, and various other equipment common to a quarrying operation. This process operates on a gravity-feed basis and is several stories high. The Taxpayer purchased all equipment and construction materials (i.e., concrete and steel) and constructed the facility. The Taxpayer was assessed sales tax on the purchase of structural steel. The Taxpayer believes that the steel in question is exempt as a component part of the exempt processing equipment.
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 therefor or replacement thereof, fuel power, energy, or supplies, used directly in processing, manufacturing, refining, mining, or converting products for sale or resale.' (Emphasis added.)
Code of Virginia § 58.1-602 defines the term "used directly,' in relation to the above exemption, to mean "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) interprets both of the above statutes, stating the following:
Accordingly, the fact that an item is essential to production is not sufficient ground for exemption based on the Virginia Supreme Court's holding that "essential items which are not an immediate part of actual production are not exempt.' (Webster Brick Company. Inc. v. Department of Taxation, 219 Va. 81, 245 S.E.2d 252 (1978)). In addition, VAC 10-210-920(C)(2) lists taxable items which are used in the production function and specifically states that the tax is applicable to, "materials and apparatus used to support exempt production machinery, including flooring, concrete and metal platforms, etc., except supports or legs which are a component part of exempt production machinery and do not become affixed to realty.'
Based on all of the above, and the information provided in your appeal, I do not find that the structural steel at issue is exempt. In order for the structural steel to be exempt, the steel must be a component part of exempt machinery and must not become affixed to realty. In the present case, the structural steel was not purchased as a part of the exempt equipment, but was purchased separately and installed by the Taxpayer. In addition, the structural steel is annexed to the concrete by permanent bolts, thereby rendering the steel a part of the realty. Accordingly, I find no basis for revising the audit.
Based on the foregoing, the assessment is correct as issued. Payment of the outstanding liability for tax and interest totaling ***** should be mailed to ***** Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23282-1880 within 30 days of the date of this letter. If you should have any questions, you may contact ***** at******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17216K
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter seeking correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer') for the period of December 1994 through January 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the rock quarry business. As a part of the quarry business, the Taxpayer has set up a stone crushing operation which includes a rock box, stone crusher, control house, conveyors, and various other equipment common to a quarrying operation. This process operates on a gravity-feed basis and is several stories high. The Taxpayer purchased all equipment and construction materials (i.e., concrete and steel) and constructed the facility. The Taxpayer was assessed sales tax on the purchase of structural steel. The Taxpayer believes that the steel in question is exempt as a component part of the exempt processing equipment.
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 therefor or replacement thereof, fuel power, energy, or supplies, used directly in processing, manufacturing, refining, mining, or converting products for sale or resale.' (Emphasis added.)
Code of Virginia § 58.1-602 defines the term "used directly,' in relation to the above exemption, to mean "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) interprets both of the above statutes, stating the following:
-
- Items of tangible personal property which are used directly in manufacturing ... are machinery, tools and repair parts therefor, fuel energy, or supplies which are indispensable to the actual production of products for sale and which are used as an immediate part of such production process. Convenient or facilitative items, such as fuel storage tanks, platforms, structural steel, grating, equipment supports, special flooring, etc., or items that are essential to the operation of a business but not an immediate part of actual production, are not used directly in manufacturing.... (Emphasis added.)
Accordingly, the fact that an item is essential to production is not sufficient ground for exemption based on the Virginia Supreme Court's holding that "essential items which are not an immediate part of actual production are not exempt.' (Webster Brick Company. Inc. v. Department of Taxation, 219 Va. 81, 245 S.E.2d 252 (1978)). In addition, VAC 10-210-920(C)(2) lists taxable items which are used in the production function and specifically states that the tax is applicable to, "materials and apparatus used to support exempt production machinery, including flooring, concrete and metal platforms, etc., except supports or legs which are a component part of exempt production machinery and do not become affixed to realty.'
Based on all of the above, and the information provided in your appeal, I do not find that the structural steel at issue is exempt. In order for the structural steel to be exempt, the steel must be a component part of exempt machinery and must not become affixed to realty. In the present case, the structural steel was not purchased as a part of the exempt equipment, but was purchased separately and installed by the Taxpayer. In addition, the structural steel is annexed to the concrete by permanent bolts, thereby rendering the steel a part of the realty. Accordingly, I find no basis for revising the audit.
Based on the foregoing, the assessment is correct as issued. Payment of the outstanding liability for tax and interest totaling ***** should be mailed to ***** Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23282-1880 within 30 days of the date of this letter. If you should have any questions, you may contact ***** at******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17216K
Rulings of the Tax Commissioner