Tax Type
Retail Sales and Use Tax
Description
Raw coal bins; Conveyor belt covers; Coal preparation plant
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
07-20-1987
July 20, 1987
Re: §58.1-1821 Application/Sales and Use Tax
Dear *****************
This will reply to your letter of January 28, 1987. in which you submit an application for correction of sales and use tax assessed to************* as the result of a recent audit.
FACTS
*********** (Taxpayer) is engaged in the erection of coal preparation plants. As the result of a recent audit, the taxpayer was assessed sales and use tax on materials incorporated into such plants, including raw coal bins, magnetite bins, and covers for belt conveyers.
The taxpayer contests the assessment of tax on raw coal bins on the basis that such bins are used in the exempt handling and storage of raw materials. In addition, the taxpayer contends that the magnetite bins in question constitute exempt production machinery and that the covers for its exempt belt conveyer are in fact integral parts of the conveyer. Lastly, the taxpayer contests the imposition of penalty as the application of the tax to coal preparation plants was in litigation before the Virginia Supreme Court during most of the period covered by the department's audit.
DETERMINATION
I will address the issues raised by the taxpayer on a separate basis below:
Raw Coal Bins
These bins receive coal delivered from mine sites by truck and discharge the coal on to belt conveyers for movement to the screening and crushing station of the coal preparation plant.
§58.1-608.1 of the Code of Virginia provides an exemption from the sales and use tax for tangible personal property used directly in industrial manufacturing, mining, and processing. Virginia Regulation 630-10-65.2 in turn defines "direct use" in mineral processing as beginning "with the handling of the raw material at the processing site and...(ending) with the conveyance of the processed product to storage at a stockpile at the plant site."
As the raw coal bins are used in the handling and storage of raw materials for use in industrial processing, I find the bins to be used directly in exempt mineral processing. These items will be removed from the department's audit accordingly.
Magnetite Bins
These bins are used to store magnetite, a supply used in the processing of coal. The bins measure magnetite into the production process; after use in the process, the magnetite is then recycled back into the bins for future use. The taxpayer contends that the bins constitute exempt production "machinery."
The bins in question are not used for the storage of raw materials as are the raw coal bins above. However, Virginia Regulation 630-10-63.C.2 provides in effect that storage tanks holding fuel or other exempt production supplies are exempt from the tax so long as the tanks constitute "machinery." As such, the regulation references the opinion of the Virginia Supreme Court in Webster Brick v. Department, 219 Va. 81, 245 S.E.2d 252 (1978), in which the court held that certain fuel storage tanks were not exempt plant machinery. The court noted that the tanks in question "are not machines, with moving parts, on the production line."
Based on the foregoing, if the bins constitute machinery, i.e., have moving parts, and are part of the production line of the plant, the exemption applies. The department will reevaluate the information it possesses on the bins and make a determination whether the bins constitute exempt production machinery.
Covers for Belt Conveyers
The covers in question are placed over a coal conveyer system in order to prevent the release of coal dust. As the covers were purchased separately from the coal conveyer system, I cannot necessarily conclude that they form an integral part of the system. Further, the covers are not essential to the processing of coal, but are merely facilitative in nature. As such, the covers themselves are not used directly in production.
Based on the foregoing, I do not find basis at this time for relief of the tax assessed on the covers. However, these covers will be removed from the department's audit if the taxpayer can demonstrate that they form a part of certified pollution control equipment or facilities for purposes of the exemption set forth in §58.1-608.52 of the Code of Virginia.
Penalty
Inasmuch as the application of the sales and use tax to materials incorporated into coal preparation plants was in litigation before the Virginia Supreme Court during much of the period covered by the department's audit, I find basis for relief of the penalty assessed.
The revisions noted above will be performed as soon as practicable and a revised notice of assessment will be issued to the taxpayer.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner