Tax Type
Retail Sales and Use Tax
Description
Coal augering system
Topic
Property Subject to Tax
Date Issued
03-14-1986
March 14, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear ******************
This will reply to your letter of November 25, 1985 seeking correction of an assessment issued in the above referenced case.
FACTS
In connection with its coal mining and processing business, ************* (taxpayer), was assessed sales ant use tax on a coal augering system and on parts used in the repair of such system.
The coal auguring system allows for the extraction of a small sample of raw coal, just after it has been weighed in at taxpayer's plant site, to determine the type and quality of different coals being delivered. Specifically, the system provides information on the ratio of coal to non-coal materials being delivered, and then allows taxpayer's plant personnel to adjust various stages of the cleaning process to derive the optimum grade of clean coal output.
Taxpayer contests the imposition of sales and use tax on its coal auguring system and on parts used in the repair of such auguring system, which it claims is an integral part of the production process.
Taxpayer further seeks a refund of tax previously paid on certain chemicals used in treating certain ponds on its property which have been certified by the State Water Control Board as pollution control ponds.
DETERMINATION
§58.1-608(1) of the Virginia Code exempts from the sales and use tax, "machinery or tools or repair parts therefor or replacement parts thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale." (Emphasis added) §58.1-602(22) of the Code defines "used directly" as, "those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing or mining process, but not including ancillary activities such as general maintenance or administration."
§630-10-65.2(A)(3)(d) of the Virginia Retail Sales and Use Tax Regulations provides in pertinent part that "[i]nspection and testing to determine the quality of the [mined] product and to determine if the product meets industry standard is deemed to be a part of mining and mineral processing and is an exempt activity."
In addition, §630-10-65(A)(3)(e) of the Regulations provides that, "[r]eplacement and repair parts which are used to replace worn or damaged parts on exempt machinery and equipment as well as operating supplies which are actively and continually consumed in the operation of exempt machinery and equipment are deemed used directly in mining and/or mineral processing and are not subject to the tax." However, tools, supplies, machinery and equipment used in performing routine repair and maintenance activities are not considered to be used directly m mining.
Inasmuch as the coal auguring system in the present case is used directly in taxpayer's production process, I find basis for correction of the assessment to remove such coal augering system ant repair parts from the audit. In addition, I find basis to grant taxpayer's request for a refund of taxes previously paid on chemicals used in treating its certified pollution control pond.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner