Tax Type
Retail Sales and Use Tax
Description
Fuel used by seller of asphalt; Withdrawals from inventory
Topic
Taxability of Persons and Transactions
Date Issued
09-04-1985
September 4, 1985
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of July 1, 1985 protesting a sales and use tax assessment in the above referenced case for the period May, 1982 through April, 1985.
Facts
***** (Taxpayer), is involved in the sale of home heating fuel oil, the distribution of automotive gasoline, and the sale of hot liquid asphalt to paving contractors. In connection with its sales of hot liquid asphalt, Taxpayer receives railroad tank car shipments of asphalt which must be heated to a temperature of approximately 300 degrees F to liquefy the asphalt and facilitate its removal from the tank car. Subsequent to such removal, Taxpayer maintains such asphalt in a liquefied state by keeping it at approximately 3OO degrees F Prior to selling such liquefied asphalt to paving contractors, Taxpayer introduces an additive to the asphalt to comply with the Virginia Department of Highway's asphalt specifications.
Taxpayer contends that its withdrawals from inventory of heating oil used to operate a boiler which maintains such asphalt at 3OO degrees F, should not be subject to sales or use tax since it is engaged in exempt industrial manufacturing or processing, pursuant to §58.1-6O8(1) of the Virginia Code.
Determination
§58.1-6O8(1)(c) of the Virginia Code exempts from the sales and use tax, "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale."
§63O-10-63(A)(7) of the Virginia Sales and Use Tax Regulations states in pertinent part that "for a business to obtain the exemption, it must first be manufacturing or processing products for sale or resale and secondly, such production must be industrial in nature."
"Manufacturing" as used in the Sales and Use Tax regulations, implies some "mechanical or chemical transformation of materials or substances into new products." See §63O-10-63(B)(l), Virginia Retail Sales and Use Tax Regulations. "Processing", as used in the regulations, means, "the treatment of materials, substances, or other products in such a manner as to render such products more useful or marketable."
The asphalt liquification procedure used by Taxpayer in the present case to facilitate the flow of asphalt from one container to another, and to allow for the addition of an additive does not meet the definition of manufacturing or processing as used in the sales and use tax law. That is, Taxpayer's procedure neither results in the mechanical or chemical transformation of materials or substances into new products, nor does Taxpayer's addition of a single additive render such procedure "processing".
But for the addition of a single additive, the liquefied asphalt Taxpayer receives from its suppliers is the same as the liquefied asphalt it sells to paving contractors. Therefore, inasmuch as Taxpayer's procedure does not qualify as manufacturing or processing within the sales and use tax law, it is unnecessary to address the issue of whether such procedure is industrial in nature.
§63O-10-20(D) of the Virginia Sales and Use Tax Regulations provides that whenever a dealer makes an exempt purchase of tangible personal property for resale, (i.e. pursuant to a certificate of exemption), and makes any use of such property other than an exempt use, he will be treated as having made "a taxable sale [of such property] at the time [it] is first used by him" Therefore, when Taxpayer in the present case withdrew from its inventory, fuel purchased for resale under a certificate of exemption, it made a taxable use of such fuel.
Based on all of the foregoing I find no basis for correction of the assessment in this case, the full amount of which is hereby due and payable. However, if notwithstanding all of the above, Taxpayer still feels aggrieved by the assessment in this case, it should notify the department within 30 days of the date of this letter to request a meeting.
Sincerely,
W. H. Forst
Tax Commissioner
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of July 1, 1985 protesting a sales and use tax assessment in the above referenced case for the period May, 1982 through April, 1985.
Facts
***** (Taxpayer), is involved in the sale of home heating fuel oil, the distribution of automotive gasoline, and the sale of hot liquid asphalt to paving contractors. In connection with its sales of hot liquid asphalt, Taxpayer receives railroad tank car shipments of asphalt which must be heated to a temperature of approximately 300 degrees F to liquefy the asphalt and facilitate its removal from the tank car. Subsequent to such removal, Taxpayer maintains such asphalt in a liquefied state by keeping it at approximately 3OO degrees F Prior to selling such liquefied asphalt to paving contractors, Taxpayer introduces an additive to the asphalt to comply with the Virginia Department of Highway's asphalt specifications.
Taxpayer contends that its withdrawals from inventory of heating oil used to operate a boiler which maintains such asphalt at 3OO degrees F, should not be subject to sales or use tax since it is engaged in exempt industrial manufacturing or processing, pursuant to §58.1-6O8(1) of the Virginia Code.
Determination
§58.1-6O8(1)(c) of the Virginia Code exempts from the sales and use tax, "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale."
§63O-10-63(A)(7) of the Virginia Sales and Use Tax Regulations states in pertinent part that "for a business to obtain the exemption, it must first be manufacturing or processing products for sale or resale and secondly, such production must be industrial in nature."
"Manufacturing" as used in the Sales and Use Tax regulations, implies some "mechanical or chemical transformation of materials or substances into new products." See §63O-10-63(B)(l), Virginia Retail Sales and Use Tax Regulations. "Processing", as used in the regulations, means, "the treatment of materials, substances, or other products in such a manner as to render such products more useful or marketable."
The asphalt liquification procedure used by Taxpayer in the present case to facilitate the flow of asphalt from one container to another, and to allow for the addition of an additive does not meet the definition of manufacturing or processing as used in the sales and use tax law. That is, Taxpayer's procedure neither results in the mechanical or chemical transformation of materials or substances into new products, nor does Taxpayer's addition of a single additive render such procedure "processing".
But for the addition of a single additive, the liquefied asphalt Taxpayer receives from its suppliers is the same as the liquefied asphalt it sells to paving contractors. Therefore, inasmuch as Taxpayer's procedure does not qualify as manufacturing or processing within the sales and use tax law, it is unnecessary to address the issue of whether such procedure is industrial in nature.
§63O-10-20(D) of the Virginia Sales and Use Tax Regulations provides that whenever a dealer makes an exempt purchase of tangible personal property for resale, (i.e. pursuant to a certificate of exemption), and makes any use of such property other than an exempt use, he will be treated as having made "a taxable sale [of such property] at the time [it] is first used by him" Therefore, when Taxpayer in the present case withdrew from its inventory, fuel purchased for resale under a certificate of exemption, it made a taxable use of such fuel.
Based on all of the foregoing I find no basis for correction of the assessment in this case, the full amount of which is hereby due and payable. However, if notwithstanding all of the above, Taxpayer still feels aggrieved by the assessment in this case, it should notify the department within 30 days of the date of this letter to request a meeting.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner