Tax Type
Retail Sales and Use Tax
Description
Furniture manufacturer/wholesaler; Merchandise samples
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
08-02-2000
August 2, 2000
Re: § 58.1-1821 Application:
Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period of October 1995 through September 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the business of manufacturing and selling furniture at wholesale. The Taxpayer was audited and assessed tax on tangible personal property used and consumed in its Sample Department. This department's activity entails the purchase of competitors' furniture, the manufacture of new sample products to be shown at furniture shows, and evaluating new products to determine if there is a market for them. You indicate that the furniture items manufactured by the Sample Department are ultimately sold by the Taxpayer. The Taxpayer believes that the manufacturing exemption extends to the Sample Department, and that the items manufactured in the Sample Department are exempt as items for resale. The Taxpayer is requesting correction of the assessment.
DETERMINATION
Based on the information furnished to this office, the Taxpayer clearly enjoys the industrial manufacturing exemption afforded under Code of Virginia § 58.1-609.3(2) for its furniture manufacturing operation. The question to be addressed is whether the manufacturing exemption extends to the Taxpayer's Sample Department, which manufactures new furniture products to be shown at trade shows to determine demand.
It has been the longstanding policy of the department that samples produced by a manufacturer for promotional purposes or to be given-away are taxable to the manufacturer based on the manufactured cost price. The situation in this case is different in that the sample furniture produced by the Taxpayer is for display at trade shows and ultimately for resale. The samples are held for sale to retailers at the conclusion of the show or for sale at the Taxpayer's outlet stores in Virginia.
Code of Virginia § 58.1-623.C, copy enclosed, provides in part the following:
If a taxpayer who gives a certificate (of exemption) . . . makes any use of the property other than an exempt use or retention, demonstration, or display while holding the property for resale . . . in the regular course of business, such shall be deemed a taxable sale to the taxpayer . . . . (Emphasis added).
Based on all of the above, I find that the Taxpayer's Sample Department is manufacturing furniture for sale or resale and enjoys the manufacturing exemption for qualifying equipment and furniture items. The samples being produced by the Sample Department are for display at trade shows, and they are held for resale in the regular course of business.
An auditor from the ***** District Office will contact the Taxpayer to make the appropriate adjustments. Once the audit has been adjusted, a revised notice of assessment will be mailed to the Taxpayer. If you should have any questions, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21221K
Re: § 58.1-1821 Application:
Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period of October 1995 through September 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the business of manufacturing and selling furniture at wholesale. The Taxpayer was audited and assessed tax on tangible personal property used and consumed in its Sample Department. This department's activity entails the purchase of competitors' furniture, the manufacture of new sample products to be shown at furniture shows, and evaluating new products to determine if there is a market for them. You indicate that the furniture items manufactured by the Sample Department are ultimately sold by the Taxpayer. The Taxpayer believes that the manufacturing exemption extends to the Sample Department, and that the items manufactured in the Sample Department are exempt as items for resale. The Taxpayer is requesting correction of the assessment.
DETERMINATION
Based on the information furnished to this office, the Taxpayer clearly enjoys the industrial manufacturing exemption afforded under Code of Virginia § 58.1-609.3(2) for its furniture manufacturing operation. The question to be addressed is whether the manufacturing exemption extends to the Taxpayer's Sample Department, which manufactures new furniture products to be shown at trade shows to determine demand.
It has been the longstanding policy of the department that samples produced by a manufacturer for promotional purposes or to be given-away are taxable to the manufacturer based on the manufactured cost price. The situation in this case is different in that the sample furniture produced by the Taxpayer is for display at trade shows and ultimately for resale. The samples are held for sale to retailers at the conclusion of the show or for sale at the Taxpayer's outlet stores in Virginia.
Code of Virginia § 58.1-623.C, copy enclosed, provides in part the following:
If a taxpayer who gives a certificate (of exemption) . . . makes any use of the property other than an exempt use or retention, demonstration, or display while holding the property for resale . . . in the regular course of business, such shall be deemed a taxable sale to the taxpayer . . . . (Emphasis added).
Based on all of the above, I find that the Taxpayer's Sample Department is manufacturing furniture for sale or resale and enjoys the manufacturing exemption for qualifying equipment and furniture items. The samples being produced by the Sample Department are for display at trade shows, and they are held for resale in the regular course of business.
An auditor from the ***** District Office will contact the Taxpayer to make the appropriate adjustments. Once the audit has been adjusted, a revised notice of assessment will be mailed to the Taxpayer. If you should have any questions, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21221K
Rulings of the Tax Commissioner