West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-15 - Consumer Sales And Service Tax And Use Tax › Section 110-15-123 - Direct Use Concept

Current through Register Vol. XLI, No. 28, July 12, 2024
123.1.
				General Concept. - Beginning July 1, 1987, the liability of certain industries
				outlined in Section 123.2 for consumers sales and service tax on purchases for
				use in business became subject to the direct use concept. Under this concept,
				the applicability of the sales and use tax depends on the classification of the
				business purchasing the property or service and the use of the property or
				service being purchased rather than the type of property or service purchased.
				The same purchase of the same item may be taxable in one instance and exempt in
				another, depending totally on its purchaser and usage. The basic concept is
				that purchases directly used in activities or operations which are an integral
				and essential part of the specified business' activity are exempt from sales
				and use tax, while purchases which are instead used in activities or operations
				which are incidental, convenient, or remote to such activities are taxable for
				sales and use tax purposes. More specific guidelines are provided in Sections
				123.3 and 123.4 of these regulations.
123.2. Industries Subject to the Direct Use
				Concept and Effective Dates. - Persons who are engaged in the business of
				manufacturing, transportation, transmission, communication or production of
				natural resources who purchase property or services for use in that business
				activity are subject to the direct use concept. Persons engaged in the business
				activity of contracting are subject to the direct use concept only for the
				period July 1, 1987 to February 28, 1989. On or after March 1, 1989, purchases
				for use in contracting are subject to the rules outlined in Section 107 of
				these regulations.
123.3. General
				Guidelines for Determining Taxability of Purchases for Use in Industries
				Subject to Direct Use Concept. - General guidelines for determining whether
				property or services are directly or indirectly used in an activity, thereby
				making the purchase taxable or exempt, are outlined in Sections 123.3.1 and
				123.3.2 of these regulations. More specific examples are listed by industry in
				Section 123.4 of these regulations.
123.3.1.
				Uses of Property or Services Constituting Direct Use. - Uses of property or
				services which will constitute direct use when used by a person engaged in the
				business of manufacturing, transportation, transmission, communication or the
				production of natural resources, thereby making its purchase exempt from sales
				and use tax shall include only the following
123.3.1.1. Tangible personal property
				physically incorporated into a finished product resulting from manufacturing
				production, production of natural resources or from contracting activity during
				the period July 1, 1987 to February 28, 1989. For example, raw materials used
				by a manufacturer in making the finished product would be directly used in
				manufacturing.
123.3.1.2. Tangible
				personal property or services causing a direct physical, chemical or other
				change upon property undergoing manufacturing production, production of natural
				resources or subject to contracting activity during the period July 1, 1987 to
				February 28, 1989. For example, equipment used to assemble parts during the
				manufacturing process would be directly used in manufacturing.
123.3.1.3. Tangible personal property or
				services used in transporting or storing property undergoing transportation,
				communication, transmission, manufacturing production, production of natural
				resources or subject to contracting activity during the period July 1, 1987 to
				February 28, 1989. For example, fork lifts used to move partially manufactured
				goods from one area to another would be directly used in manufacturing, while
				fork lifts used to move completed goods on the loading dock would not be
				directly used in manufacturing.
123.3.1.4. Tangible personal property or
				services used in measuring or verifying a change in property directly used in
				transportation, communication, transmission, manufacturing production,
				production of natural resources, or in contracting activity during the period
				July 1, 1987 to February 28, 1989. For example, testing equipment used in
				quality control to determine whether goods being manufactured meet contract
				specifications would be directly used in manufacturing.
123.3.1.5. Tangible personal property or
				services used to physically control or direct the physical movement or
				operation of property directly used in transportation, communication,
				transmission, manufacturing production, production of natural resources or in
				contracting activity during the period July 1, 1987 to February 28, 1989. For
				example, conveyor belts used in moving manufactured goods on an assembly line
				would be directly used in manufacturing.
123.3.1.6. Tangible personal property or
				services used to direct or record the flow of property undergoing
				transportation, communication, transmission, manufacturing production or
				production of natural resources or in contracting activity during the period
				July 1, 1987 to February 28, 1989. For example, meters used to record the
				amount of natural gas traveling through a pipeline would be directly used in
				transmission.
123.3.1.7. Tangible
				personal property or services used to produce energy for property directly used
				in transportation, communication, transmission, manufacturing production or
				production of natural resources, or in contracting activity during the period
				July 1, 1987 to February 28, 1989. For example, an electrical generator or
				boiler used to produce energy for use in operating equipment directly used in
				manufacturing is considered to be directly used in manufacturing.
123.3.1.8. Tangible personal property or
				services used to facilitate the transmission of gas, water, steam or
				electricity from the point of their diversion to property directly used in
				transportation, communication, transmission, manufacturing production,
				production of natural resources, or in contracting activity during the period
				July 1, 1987 to February 28, 1989. For example, pipes used to carry water to
				equipment directly used in manufacturing would be directly used in
				manufacturing.
123.3.1.9. Tangible
				personal property or services used to control or otherwise regulate atmospheric
				conditions required for transportation, communication, transmission,
				manufacturing production, production of natural resources or in contracting
				activity during the period July 1, 1987 to February 28, 1989. For example, air
				conditioning necessary to control temperatures during a manufacturing process
				would be directly used while air conditioning for the personal comfort of
				employees would not be directly used in manufacturing.
123.3.1.10. Tangible personal property or
				services which serve as an operating supply for property undergoing
				transmission, manufacturing production, production of natural resources or in
				contracting activity during the period July 1, 1987 to February 28, 1989, or
				for property directly used in transportation, communication, transmission,
				manufacturing production, production of natural resources or in contracting
				activity during the period July 1, 1987 to February 28, 1989. For example,
				warehouses used to store property directly used in the manufacturing process
				are directly used in manufacturing.
123.3.1.11. Tangible personal property or
				services used in the maintenance or repair of property directly used in
				transportation, communication, transmission, manufacturing production,
				production of natural resources or in contracting activity during the period
				July 1, 1987 to February 28, 1989. For example, repair services performed on
				equipment used directly in the manufacturing process are directly used in
				manufacturing.
123.3.1.12. Tangible
				personal property or services used in the storage, removal or transportation of
				economic waste directly resulting from the activities of transportation,
				communication, transmission, manufacturing production, production of natural
				resources, or in contracting activity during the period July 1, 1987 to
				February 28, 1989. For example, trash bins used to store waste directly
				resulting from manufacturing are directly used in manufacturing.
123.3.1.13. Tangible personal property or
				services used in pollution control or environmental quality or protection
				activity directly relating to the activities of transportation, communication,
				transmission, manufacturing production, production of natural resources or in
				contracting activity during the period July 1, 1987 to February 28, 1989. For
				example, a scrubber used to clean air emissions from a manufacturing facility
				would be directly used in manufacturing or a slurry pond used to collect runoff
				from a mine would be directly used in the production of natural
				resources.
123.3.1.14. Tangible
				personal property or services used in personnel, plant, product, or community
				safety or security activity directly relating to the activities of
				transportation, communication, transmission, manufacturing production,
				production of natural resources, or in contracting activity during the period
				July 1, 1987 to February 28, 1989. For example, safety shoes used by personnel
				for protection in a hazardous manufacturing facility are directly used in
				manufacturing.
123.3.1.15. Tangible
				personal property or services used as an integral and essential part of
				transportation, communication, transmission, manufacturing production,
				production of natural resources or in contracting activity during the period
				July 1, 1987 to February 28, 1989.