Tax Type
Retail Sales and Use Tax
Description
Criteria for manufacturing exemption; Raw materials
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
05-11-1987
May 11, 1987
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****************
This will reply to your letter of February 26, 1987, in which you submit an application for correction of sales and use tax assessed to your corporation as the result of a recent audit.
As noted in your letter, your corporation is engaged in the production and sale of audio visual devices for use in presentations and for other purposes. The primary question raised in your letter is whether the industrial manufacturing and processing exemptions provided in §58.1-608.1 of the Code of Virginia are applicable to your corporation's production activities.
The application of the industrial exemptions to firms such as yours was answered in a recent determination, a copy of which is enclosed for your review. As you will note, this determination provided that establishments engaged in audio visual and training film production or film strip and slide production were not entitled to the industrial exemptions. As you will also note, the primary criteria for determining whether a business is entitled to the industrial exemptions is whether it is found in codes 10-14 or 20-39 of the Standard Industrial Classification (SIC) Manual. Businesses similar in nature to yours are generally classified in either code 73 or 78 of the SIC Manual, but by contrast printers are found in code 27 of the SIC Manual.
Notwithstanding the inapplicability of the industrial exemptions to your corporation, I find basis for relief of any tax that may have been assessed on materials that became component parts of finished products sold to customers. Such materials enjoy the resale exemption, the same as chemicals, paper, and other materials that become component parts of finished photographs sold by a photographer. However, materials that do not become incorporated into finished products do not enjoy the resale exemption. This is similar in many respects to film used by a photographer, which is generally deemed taxable because it ordinarily does not become a component part of the finished photographs that are sold to customers.
Based on the foregoing, the industrial manufacturing and processing exemptions are inapplicable to your operations, but the department will revise its audit, if necessary, to remove any items that your corporation purchased for resale to customers.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner