Tax Type
Retail Sales and Use Tax
Description
Warehouse offsite; Plant site concept
Topic
Property Subject to Tax
Date Issued
06-29-1984
June 29, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear ****
This will reply to your letter of February 15, 1984 in which you submit an application for relief of sales and use tax assessed to the ***** as the result of an audit.
FACTS
A recent audit of the ***** (hereinafter *****) revealed a failure to remit the sales and use tax on various sales, purchases, and uses of tangible personal property. ***** contests those portions of such assessment relating to the purchase of a forklift used at a warehouse separate from its production plant and textbooks provided as samples to potential purchasers both within and without Virginia.
***** deems the forklift in question to be exempt under § 58-441.6 of the Code of Virginia inasmuch as it is used in the handling and storage of raw materials even though such activities are carried out away from its printing plant site. In addition, ***** considers the textbooks provided as samples to be exempt under Virginia Code § 58-441.6(y) as printed matter used in advertising tangible personal property for sale.
DETERMINATION
§ 58-441.3(p) of the Code of Virginia defines the word "manufacturing," as used in Virginia Code § 58-441.6, as including "the production line of the plant starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where the product is finished or completed for sale and conveyed to a warehouse at the production site" (emphasis added).
The department has traditionally interpreted the above statute as limiting the Virginia Code § 58-441.6 industrial exemption to production activities conducted at a single location. We feel that had the General Assembly not wished to place such a constraint on the exemption, it would not have included references to the plant and production site in Virginia Code § 58-441.3(p). Furthermore, the department's interpretation of this statute with respect to the plant site test has been upheld in two lower court decisions, Charlottesville Newspapers v. Commonwealth, Circuit Court of the City of Charlottesville (1978) and, Wellmore Coal Corporation, et al v. Commonwealth, Circuit Court of Buchanan County (1981).
Based upon the foregoing, I must conclude that the forklift used at ***** warehouse off of its plant site is not exempt from the sales and use tax as an item used directly in manufacturing.
Virginia Code § 58-441.6(y) exempts from the sales and use tax "[c]atalogs and other printed materials used in the advertising of tangible personal property for sale, the envelopes, containers and labels used for packaging and mailing same... when stored for twelve months or less in the Commonwealth and distributed for use outside the Commonwealth."
A review of the legislative history of the above statute reveals that it was enacted to provide continued relief to direct mail operations which contracted with Virginia printers to produce catalogs and similar items. As enacted in 1976, subsection (y) exempted "[a]dvertising and promotional materials, catalogs, envelopes..." from the tax. However, subsection (y) was amended in 1977 to place the statute in substantially the same form as it is presently, exempting '[c]atalogs and other printed materials..."
The department feels that the General Assembly intended the word "catalogs" to limit the scope of the exemption. Any other interpretation of the law would tend to exempt virtually any printed advertising materials, such as pencils, pens, grocery store displays, matchbooks, calendars, etc., from the tax in contravention of the legislature's obvious intent when it narrowed the exemption in 1977.
Inasmuch as the textbooks in question do not constitute exempt advertising materials within the meaning of Virginia Code § 58-441.6(y), I must therefore deem such textbooks to be subject to the tax. The issue at question here is analogous to the situation reviewed by the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E. 2d 413 (1980). The Court held in Miller-Morton that product samples, not otherwise exempt from tax, became subject to the sales and use tax when withdrawn from resale inventory under the provisions of Virginia Code § 58-441.17(c), which states:
"If a purchaser. . .who give a certificate [of exemption from sales tax]. . . makes any use of the property other than an exempt use or retention, demonstration, or display while holding property for resale, distribution, or lease. . .such use shall be deemed a taxable sale by the purchaser. . .as of the time the property. . .is first used by him, and the cost of the property to him shall be deemed the sales price of such retail sale.
Therefore, based upon the foregoing, I find no basis for the relief of sales and use tax assessed to ***** on its purchase of a forklift for use at its warehouse facility or on its provision of textbook samples to institutions of learning.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner