Tax Type
Retail Sales and Use Tax
Description
Industrial classification
Topic
Appropriateness of Audit Methodology
Basis of Tax
Date Issued
08-18-1982
August 18, 1982
Re: § 58-1118 Application/Sales and Use Tax
Dear**************
This letter will respond to your correspondence of July 22, 1982 in which you apply for correction of use tax assessed against *********** as the result of a recent audit.
FACTS
******* (hereinafter*******) is engaged in the production of electronic products, principally for resale to industrial manufacturers.
********** operation is conducted in a 5,000 square foot plant with twelve employees, two of whom are administrative personnel. A minimal inventory of approximately $ ****** in parts is maintained. The approximate capital machinery investment is ****** including some leased equipment.
***********process does not utilize a mechanized assembly line. Circuitry is soldered by hand, software chips are programmed and encoded by hand, and the loaded chips are manually placed on the circuitry.
******** contests the assessment of use tax on various pieces of equipment based upon the contention that the operation is exempt from the tax under the provisions of § 58-441.6 of the Code of Virginia.
DETERMINATION
Virginia Code § 58-441.6 exempts raw materials, machinery and tools and their repair parts, fuel, supplies and packaging products used directly in manufacturing in the industrial sense.
Thus in order to qualify for this exemption, an operation must meet two tests. First, the operation must constitute manufacturing, processing, refining, or converting, and second, the operation must be industrial in nature. The requirement that an operation be industrial to come under the provisions of Virginia Code § 58-441.6 was affirmed by the Virginia Supreme Court in Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E. 2d 511 (1973), with the court holding that:
-
- But the paragraph (58-441.6) must be interpreted as a whole and read as it is punctuated. When so interpreted and read, it is intended, in our opinion, to provide exemption for machinery and tools used in processing, manufacturing, refining, mining or conversion of products for sale or resale only in the industrial sense.
- But the paragraph (58-441.6) must be interpreted as a whole and read as it is punctuated. When so interpreted and read, it is intended, in our opinion, to provide exemption for machinery and tools used in processing, manufacturing, refining, mining or conversion of products for sale or resale only in the industrial sense.
The department has consistently utilized these indicia in determining whether a manufacturing or processing operation is industrial in nature. In the instant case, there is no question that******* is fabricating a product for sale. However, the small capital investment, small plant size, small staff size, lack of a mechanized assembly line, and minimal inventory indicate that ***** fails to satisfy any of the criteria for classification as industrial.
Therefore, based upon the foregoing I find no basis for granting relief from the use tax assessed. If you desire a hearing on this matter, please contact us within thirty days; otherwise this determination is final.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner