90-44 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Linen rental and laundry carts and cleaning supplies; Industrial processing

Topic

Taxability of Persons and Transactions

Date Issued

03-19-1990

March 19, 1990

Re: §58.1-1821 Application/Sales and Use Tax

Dear ********************

This will reply to your letter of August 31, 1989 in which you are seeking correction of the audit assessment for the period of January 1, 1985 through December 31, 1987.

FACTS

*********** (the Taxpayer) is in the business of linen rental and laundering. The Taxpayer, in most cases, rents the linens to the customers and also provides the laundering service for these linens. However, the Taxpayer will also provide laundering service for customer owned linens.

There are two areas being contested in the audit. The first area involves laundry containers which are used to deliver clean linens to customers. These containers remain at the customer's site and are then used to return soiled linens to the Taxpayer's plant site. These carts are also used to convey linens along the processing line. The second area involves supplies, i.e. soap powder, disinfectant, etc., used by the Taxpayer in laundering customer owned linens.

DETERMINATION

§630-10-63(D) of the Virginia Retail Sales and Use Tax Regulations deals with processing machinery, tools and supplies which are used in both taxable and exempt processing activities and states the following:

- When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and the other of which is not (taxable), the sales and use tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in non-exempt activities. Likewise, the item will be totally exempt from tax if the preponderance of its use is in exempt production activities.

In regard to the containers used in your operation, there exists both taxable use (distribution of linens) and exempt use (conveyance of linens along the production line). In order to determine the taxable status of such containers, taxable and exempt percentages must be established. Due to the fact that these percentages were not made available to the auditor, the containers were held taxable. However, the department will allow the Taxpayer 30 days to provide information showing that the containers are used fifty percent or more of the time in an exempt manner.

The Taxpayer is engaged in a dual operation business of leasing laundered textile products (an exempt industrial processing activity) and laundering customer owned linens (a nonexempt service activity). §630-10-58 of the Virginia Retail Sales and Use Tax Regulations addresses linen supply businesses and states, in part, "tangible personal property ... used directly by an industrial processor engaged in maintaining and preparing textile products for rental or lease is not subject to tax." However, §630-10-54 of the Regulations clearly states that "the tax applies to all tangible personal property purchased by laundries and dry cleaners for use in providing services." Therefore, the tax was properly prorated on the basis that consumable supplies, such as detergent and disinfectant, were used in a taxable manner.

Based on the foregoing, absent additional information within 30 days concerning the preponderance of use of the containers, the audit assessment will be deemed fully due and payable.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner