Tax Type
Retail Sales and Use Tax
Description
Felts used in paper production process
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
03-08-1989
March 8, 1989
Re: Request For Ruling: Sales and Use Tax
Dear******************
This will reply to your letter dated November 15, 1988, in which you requested a ruling on the application of the tax to sales of paper machinery felts by your client ("The Taxpayer").
FACTS
The Taxpayer is a manufacturer of paper machinery felts ("the felts"), large pieces of custom manufactured cloth used to make paper. The paper making process has three basic stages. In the first stage, pulp is placed on a conveyor belt system and wet felts which run on the conveyor absorb moisture out of the pulp. In the second stage, pulp is pressed through large metal rollers to form the paper. The felts surround the rollers and determine the texture and quality of the paper. The final phase of the product is drying the paper. The paper is run through a series of rollers, and drying felts absorb the remaining moisture in the paper. The felts are consumed as a part of the process through normal wear and tear, but do not become a part of the paper itself.
The Taxpayer asks whether the felts qualify for the manufacturing exemption, thus allowing the Taxpayer to make sales without collecting the tax.
RULING
Virginia Code §58.1-608(1), provides an exemption from the sales and use tax for "supplies...used directly in...manufacturing...products for resale." (Emphasis added). Interpreting the above code section, Virginia Retail Sales and Use Tax Regulation 630-10-63(B)(2), states that "[i]tems of tangible personal property which are used directly in manufacturing...are..supplies which are indispensable to the actual production of products for sale and which are used as an immediate part of such production process." (Emphasis added).
Based on these facts presented, I find that the felts are indispensable supplies used directly in the manufacturing of paper qualifying them for the manufacturing exemption set forth above. Sales of the felts to customers for use in manufacturing are not subject to the tax provided a copy of Form ST-11, copy enclosed, is properly completed by the customer and given to the Taxpayer at the time of the sale. The Taxpayer must keep a completed copy of Form ST-11 on file for each customer.
If you have any further questions, please do not hesitate to contact us.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner