Tax Type
Retail Sales and Use Tax
Description
Employee safety an integral part of the production of a product.
Topic
Exemptions
Date Issued
06-15-1982
June 15, 1982
Re: §58-1118 Application/Use Tax
Dear ********************
This will reply to your letter of September 28, 1981, our hearing of April 6, 1982 and your letter of April 23, 1982 in which you apply for correction of use tax assessed against *********** as the result of a recent audit.
FACTS
*********** (hereinafter ******* ") ********* Virginia plant is engaged in the production of printed circuits, which involves the electroplating of certain circuitry parts. The plating process uses acids, water, and other chemicals which are coated onto the circuitry in an assembly line of rollers. The liquid plating solution, which is highly corrosive, is contained on the assembly line in vats which may be as much as nine feet in depth.
The flooring in the electroplating area is composed of "acid brick" which is acid-resistant. The area surrounding the production machinery consists of a raised floor. This floor is supported by steel beams which are bolted at right angles into the floor, production machinery, and brick machinery supports. These steel supports are covered with porous grating which is highly resistant to the corrosive solution.
contests the assessment of use tax on the steel supports and the acid-resistant grating which comprise the false floor.
DETERMINATION
§58-441.6 of the Code of Virginia provides an exemption from the retail sales and use tax for:
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- machinery and tools or repair parts therefore or replacements thereof, fuel, power, energy, or supplies used directly in processing, manufacturing, mining or conversions of products for sale or resale (emphasis added)
- machinery and tools or repair parts therefore or replacements thereof, fuel, power, energy, or supplies used directly in processing, manufacturing, mining or conversions of products for sale or resale (emphasis added)
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- those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing process, but not including ancillary activities such as general maintenance or administration.
- those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing process, but not including ancillary activities such as general maintenance or administration.
These exceptions to the meaning of "integral" must be given considerable weight, inasmuch as they demonstrate the intent to narrow the exemption. Such a need for defined limits to the exemption is readily apparent when viewing the nature of manufacturing. For example, a light bulb is clearly necessary for most production processes in order that personnel may see or monitor the process. However, the light bulb in itself, while necessary to the process, is not an integral part of the process and is consequently used indirectly. In interpreting the concept of "used directly," the Virginia Supreme Court in Webster Brick Co., Inc. v. Department of Taxation 219 Va. 81, 245 S.E. 2d 252 (1978) held that:
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- We acknowledge, and the Department concedes that each item was essential to the operation of the business of manufacturing and selling brick. But essential items which are not an immediate part of the actual production process are not exempt.
In the instant case, the supports and grating comprising the false floor perform two functions. First, the flooring provides more efficient access to the production machinery by raising the work surface to a level nearly equal to that of the machinery. Second, the floor provides a safe working environment for production personnel by allowing continuously expelled corrosive solutions to flow through the porous grating, eliminating the need for personnel to work in standing corrosives.
While we do not argue that providing convenient access to production machinery is not important to the manufacturing process, we do not agree that accessibility constitutes an integral part of the process. We have consistently taxed other access devices, such as catwalks.
By the same token, providing a safe working environment for production personnel may be of paramount importance to the manufacturer, but generally employee safety is not an integral part of the production of a product. The one exception to this is the exemption for protective apparel furnished gratuitously to production personnel.
Therefore, I find no basis for granting relief of the tax assessed on the steel supports and grating, and find this amount due and payable.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner