Tax Type
Retail Sales and Use Tax
Description
Direct Payment Permits Raw materials used in asphalt production
Topic
Taxability of Persons and Transactions
Date Issued
08-29-1985
August 29, 1985
Re: Request for Ruling/Sales and Use Tax
Dear ****
This will reply to your recent letter in which you submit a request for a ruling on the application of the sales and use tax to asphalt producers.
FACTS
Your clients are asphalt producers who are primarily engaged as contractors for governmental and other highway and road construction projects. In addition to acting as contractors, your clients make "spot" sales of asphalt to other contractors, government road crews, and others. Because your clients produce asphalt for their own use in real property construction and for sale to others, you request rulings on the exemptions available to your clients for raw materials used in asphalt production and the necessity of your clients registering to collect the sales tax on spot sales of asphalt. In addition, you request a ruling as to the applicability of the "occasional sale" exemption to both infrequent sales of asphalt to others and sales of asphalt plant assets, including possibly the sale of an entire asphalt plant.
RULING
Section 58.1-6O3 of the Code of Virginia imposes the sales tax based upon the "sales price of each item or article of tangible personal property when sold at retail or distributed in this State." Thus, "spot" sales of asphalt by persons who produce asphalt primarily for their own use in road contracting work are generally subject to the tax.
Generally, all persons who produce and make spot sales of asphalt will need to register to collect the sales tax on such transactions under the provisions of Virginia Code Sections 58.1-612 and 58.1-613. The former statute provides that the tax is collectible from "dealers" and defines the term as including every person who "manufactures or produces tangible personal property for sale at retail, for use, consumption, or distribution" as well as a person, who "sells at retail (tangible personal property)...or who has in his possession for sale at retail, or for use, consumption, or distribution...tangible personal property." The latter statute provides that "[e]very person desiring to engage in or conduct business as a dealer in this State shall file with the Tax Commissioner an application for a certificate of registration for each place of business in this State."
Virginia Code Section 58.1-6O8.15 does exempt "occasional sales" from the tax, but Virginia Code Section 58.1-6O2.12 defines the term as "a sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration." As a person who produces and sells asphalt is generally required to register as a dealer, the sale of asphalt by him whether, frequent or infrequent, generally would not qualify for the occasional sale exemption. The only exception to this rule is set forth in Section 630-10-75 of the Virginia Retail Sales and Use Tax Regulations, in which it is noted that the term "occasional sale" includes "[a] sale by a person who is engaged in sales on three or fewer occasions within one calendar year." Thus, only if an asphalt producer makes three or fewer spot sales per year will he enjoy the occasional sale exemption.
The applicability of the tax to raw materials and other components of fabricated products like asphalt is set forth in Section 630-10-27 of the Virginia Retail Sales and Use Tax Regulations. Under the regulation, persons who produce tangible personal property for sale may purchase under resale exemption certificates the raw materials and other items that will actually become a part of their finished products. However, persons who produce tangible personal property for their own use or consumption in real estate construction contracts are entitled to no exemptions for such materials. Persons who produce tangible personal property for sale, but who produce primarily for their use or consumption may purchase tax exempt only those materials that can be identified at the time of purchase as items that will actually be resold to customers. If resale items cannot be so identified, absent a direct payment permit, the tax will be applicable to all purchases, with no credit available at a subsequent date for items that are eventually sold.
Asphalt producers who are unable to segregate materials for resale and those for their own use at the time of purchase are entitled to apply for direct payment permits. Under such a permit, tax would be remitted directly to the department based upon the method set forth in Section 63O-10-27.E of the Virginia Retail Sales and Use Tax Regulations. As provided in the regulation, a person who fabricates tangible personal property both for his own use in real estate construction contracts and for sale or resale shall follow a primary purpose test based on gross receipts in determining tax application. If the person is primarily a contractor, he need only remit the tax based on the cost of the raw materials used in the finished products he makes use of in real estate construction. However, if he is primarily a manufacturer, the tax on finished products he makes use of would be computed on the fabricated cost price of the products. Per the regulation, "fabricated cost price is computable by totaling the cost of materials, labor, and overhead charged to work in progress." A copy of this regulation is enclosed for your client's use.
The applicability of the occasional sale exemption to an asphalt plant or certain assets therein obviously must be determined on a case-by-case basis as such determinations rest on the particular facts of a sale. Generally, the sale of all the assets of an asphalt producer in a single transaction would qualify for the exemption as Virginia Code Section 58.1-6O2.12 notes that the exemption includes:
The sale of asphalt plant equipment or any other plant assets by a registered asphalt producer would generally be taxable under the previously stated definition of "occasional sale", i.e. a sale of property not held or used by a seller in the course of an activity for which registration as a dealer is required. Such items are obviously used in the course of an activity for which registration is required, the production and sale of asphalt. Example 2 set forth in Regulation §63O-10-75 is directly analogous to such a situation.
I am unable to set forth a general policy to follow when a single asphalt plant (as opposed to an entire asphalt business) is sold. In such an instance, more so than others, the applicability of the tax rests upon the particular facts of the situation. I am willing to issue a ruling at a later date, however, if you wish to submit to me possible scenarios under which a plant might be sold. In making determinations on such situations, factors such as the status of the plant within the corporate or business organization or the existence in Virginia of other business assets other than the plant would be taken into account.
I hope that this will provide some guidance to your clients in their administration of the sales and use tax. Please feel free to contact the department if you have further questions or wish to submit examples of possible occasional sales as suggested above.
Sincerely,
W. H. Forst
Tax Commissioner
Re: Request for Ruling/Sales and Use Tax
Dear ****
This will reply to your recent letter in which you submit a request for a ruling on the application of the sales and use tax to asphalt producers.
FACTS
Your clients are asphalt producers who are primarily engaged as contractors for governmental and other highway and road construction projects. In addition to acting as contractors, your clients make "spot" sales of asphalt to other contractors, government road crews, and others. Because your clients produce asphalt for their own use in real property construction and for sale to others, you request rulings on the exemptions available to your clients for raw materials used in asphalt production and the necessity of your clients registering to collect the sales tax on spot sales of asphalt. In addition, you request a ruling as to the applicability of the "occasional sale" exemption to both infrequent sales of asphalt to others and sales of asphalt plant assets, including possibly the sale of an entire asphalt plant.
RULING
Section 58.1-6O3 of the Code of Virginia imposes the sales tax based upon the "sales price of each item or article of tangible personal property when sold at retail or distributed in this State." Thus, "spot" sales of asphalt by persons who produce asphalt primarily for their own use in road contracting work are generally subject to the tax.
Generally, all persons who produce and make spot sales of asphalt will need to register to collect the sales tax on such transactions under the provisions of Virginia Code Sections 58.1-612 and 58.1-613. The former statute provides that the tax is collectible from "dealers" and defines the term as including every person who "manufactures or produces tangible personal property for sale at retail, for use, consumption, or distribution" as well as a person, who "sells at retail (tangible personal property)...or who has in his possession for sale at retail, or for use, consumption, or distribution...tangible personal property." The latter statute provides that "[e]very person desiring to engage in or conduct business as a dealer in this State shall file with the Tax Commissioner an application for a certificate of registration for each place of business in this State."
Virginia Code Section 58.1-6O8.15 does exempt "occasional sales" from the tax, but Virginia Code Section 58.1-6O2.12 defines the term as "a sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration." As a person who produces and sells asphalt is generally required to register as a dealer, the sale of asphalt by him whether, frequent or infrequent, generally would not qualify for the occasional sale exemption. The only exception to this rule is set forth in Section 630-10-75 of the Virginia Retail Sales and Use Tax Regulations, in which it is noted that the term "occasional sale" includes "[a] sale by a person who is engaged in sales on three or fewer occasions within one calendar year." Thus, only if an asphalt producer makes three or fewer spot sales per year will he enjoy the occasional sale exemption.
The applicability of the tax to raw materials and other components of fabricated products like asphalt is set forth in Section 630-10-27 of the Virginia Retail Sales and Use Tax Regulations. Under the regulation, persons who produce tangible personal property for sale may purchase under resale exemption certificates the raw materials and other items that will actually become a part of their finished products. However, persons who produce tangible personal property for their own use or consumption in real estate construction contracts are entitled to no exemptions for such materials. Persons who produce tangible personal property for sale, but who produce primarily for their use or consumption may purchase tax exempt only those materials that can be identified at the time of purchase as items that will actually be resold to customers. If resale items cannot be so identified, absent a direct payment permit, the tax will be applicable to all purchases, with no credit available at a subsequent date for items that are eventually sold.
Asphalt producers who are unable to segregate materials for resale and those for their own use at the time of purchase are entitled to apply for direct payment permits. Under such a permit, tax would be remitted directly to the department based upon the method set forth in Section 63O-10-27.E of the Virginia Retail Sales and Use Tax Regulations. As provided in the regulation, a person who fabricates tangible personal property both for his own use in real estate construction contracts and for sale or resale shall follow a primary purpose test based on gross receipts in determining tax application. If the person is primarily a contractor, he need only remit the tax based on the cost of the raw materials used in the finished products he makes use of in real estate construction. However, if he is primarily a manufacturer, the tax on finished products he makes use of would be computed on the fabricated cost price of the products. Per the regulation, "fabricated cost price is computable by totaling the cost of materials, labor, and overhead charged to work in progress." A copy of this regulation is enclosed for your client's use.
The applicability of the occasional sale exemption to an asphalt plant or certain assets therein obviously must be determined on a case-by-case basis as such determinations rest on the particular facts of a sale. Generally, the sale of all the assets of an asphalt producer in a single transaction would qualify for the exemption as Virginia Code Section 58.1-6O2.12 notes that the exemption includes:
-
- the sale or exchange of all or substantially all the assets of any business and the reorganization or liquidation of any business, provided such sale or exchange is not one in a series of sales or exchanges sufficient in number, scope and character to constitute an activity requiring the holding of a certificate of registration.
The sale of asphalt plant equipment or any other plant assets by a registered asphalt producer would generally be taxable under the previously stated definition of "occasional sale", i.e. a sale of property not held or used by a seller in the course of an activity for which registration as a dealer is required. Such items are obviously used in the course of an activity for which registration is required, the production and sale of asphalt. Example 2 set forth in Regulation §63O-10-75 is directly analogous to such a situation.
I am unable to set forth a general policy to follow when a single asphalt plant (as opposed to an entire asphalt business) is sold. In such an instance, more so than others, the applicability of the tax rests upon the particular facts of the situation. I am willing to issue a ruling at a later date, however, if you wish to submit to me possible scenarios under which a plant might be sold. In making determinations on such situations, factors such as the status of the plant within the corporate or business organization or the existence in Virginia of other business assets other than the plant would be taken into account.
I hope that this will provide some guidance to your clients in their administration of the sales and use tax. Please feel free to contact the department if you have further questions or wish to submit examples of possible occasional sales as suggested above.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner