Tax Type
Retail Sales and Use Tax
Description
Silos; Storage of raw materials; Plastic product manufacturer
Topic
Exemptions
Property Subject to Tax
Date Issued
05-31-1995
May 31, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This will respond to your letter of March 31, 1995 in which you seek correction of a sales and use tax assessment for***************(the "Taxpayer").
FACTS
The Taxpayer is a manufacturer of plastic products. An audit for the period September 1991 through August 1994 resulted in an assessment for untaxed purchases of silos used by the Taxpayer to store plastic pellets at the plant site for subsequent use in its manufacturing process. The auditor maintains that the silos are taxable based on the Virginia Supreme Court decision of Webster Brick Co. v. Department of Taxation [219 Va. 81, 245 S.E.2d 252 (1978)]. However, the Taxpayer maintains that the assessment is erroneous based on Webster.
DETERMINATION
Virginia Regulation 630-10-63 (B) (2) provides that "the term used directly refers to those activities that are an integral part of the production of a product, including all steps of an integrated manufacturing process...." This regulation defines the integrated manufacturing process to include "the production line of a plant, factory, mill, etc., starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where products are finished or completed for sale and conveyed to a warehouse at the same plant site."
In Webster. the court considered the application of the tax to oil storage tanks used to store an exempt supply (i.e., oil) used in the manufacturing process. While these tanks were permanently mounted to the real estate, the court ruled that affixation to realty is not determinative of the question of taxability. Rather, the court stated that if a storage tank is used directly in manufacturing, it is entitled to exemption, notwithstanding its attachment to the real estate. The court ultimately found the supply storage tanks to be used indirectly in production.
In this case, the Taxpayer's silos are used to store raw materials at the plant site and the storage of raw materials at the plant site is an integral part of the exempt manufacturing process. Therefore, the Taxpayer's storage silos are deemed used directly in manufacturing and thus are exempt from the tax. Accordingly, the tax and associated interest assessed on these silos will be abated.
If you should have any questions regarding this letter, please contact**************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/9562R
Rulings of the Tax Commissioner