By Kathryn Pittman and Andrew Appleby

The Virginia Tax Commissioner determined that an ink manufacturer’s purchase of cleaning chemicals did not qualify for the industrial manufacturing exemption from sales and use tax. To avoid color contamination, the taxpayer had to regularly clean the equipment used to produce the ink with special cleaning chemicals. The taxpayer claimed such cleaning chemicals were exempt from sales and use tax pursuant to the industrial manufacturing exemption because the cleaning chemicals were an integral and necessary part of the manufacturing and quality control process. Virginia law provides an exemption from sales and use tax for certain materials that are “used directly” in and are an “immediate part of” a manufacturing process. After reviewing relevant Virginia authorities, the Tax Commissioner found that the chemicals were not an “immediate part of” the ink production process but rather were used before and after production. The Tax Commissioner specifically noted that production had to stop before any cleaning activity could begin. Therefore, the chemicals were not actively and continuously used in the taxpayer’s manufacturing process and as such failed to meet the “used directly” requirement in the industrial manufacturing exemption. Va. Pub. Doc. No. 14-114 (Jul. 18, 2014).