West Virginia Sales Tax Exemption for Manufacturers
Written by: Mike Martin
The West Virginia sales tax exemption for manufacturers is fairly comprehensive and extends to purchases of tangible personal property that is directly used in the manufacturing process. West Virginia began applying the “direct use concept” to its sales and use tax exemption for manufacturing on July 1, 1987. The “direct use concept” means that the manner in which the tangible personal property is used in the manufacturing process will determine its taxability.
In addition to items having to be directly used or consumed in the manufacturing process, items must also be an integral and essential part of the manufacturing process as provided in W. Va. Code Sec. 11-15-2(b)(4) to qualify for West Virginia sales tax exemption for manufacturers. According to W. Va. Code Sec. 11-15-2(b)(10), “manufacturing” means a systematic operation or integrated series of systematic operations engaged in as a business or segment of a business which transforms or converts tangible personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed.
In instances where certain items of machinery and equipment, such as forklifts, are used in both a taxable and exempt manner, apportionment, or percentage of use, may be necessary to determine the amount of sales tax eligible for exemption or refund as discussed in West Virginia Taxpayer Services Division Publications No. TSD-358, 07/01/2008. See the Direct Use Guidelines for Manufacturing Industries section of this referenced publication for more specific information.
When Does Manufacturing Begin and End in West Virginia?
The West Virginia sales tax exemption for manufacturers covers items used in the systematic operation or integrated series of systematic operations which begins with the arrival of raw materials and continues until the property has reached that point where no further chemical, physical or other changes are to be made to the item in the production process per WV Code of State Rules 110-15-2.46. Storage of completed products and transportation of completed products to the customer or to another site is not included within the manufacturing process (See the Direct Use Guidelines for Manufacturing industries in West Virginia Taxpayer Services Division Publications No. TSD-358, 07/01/2008).
For example, a forklift that removes raw materials from a supplier’s vehicle and conveys these raw materials to a storage area for future use in the manufacturing operation will qualify for exemption. However, a forklift used to convey finished goods from the packaging area to a storage area for ultimate shipment to the customer is an activity that falls outside the scope of the manufacturing process and will not qualify for the exemption.
Items That Will Qualify for the West Virginia Sales Tax Exemption Include:
- Raw materials
- Transportation equipment, like forklifts, used to convey raw materials and work-in-process
- Machinery or equipment used directly in manufacturing
- Repair or replacement parts for machinery or equipment used directly in manufacturing
- Labor to repair exempt equipment
- Machinery, tools, repair parts and materials used to repair and maintain equipment used directly in the manufacturing process
- Quality control items used to test and inspect products during production
- Safety equipment or clothing such as shoes, goggles, or safety gloves
- Services used in plant security such as security guard services or alarm systems
Items That Will Not Qualify for Exemption Include:
- Office furniture
- Office supplies
- Uniforms for the personal comfort of employees
- Machinery, tools, parts, and materials used to maintain site facilities other than facilities directly used in the manufacturing process
How to Claim the West Virginia Sales Tax Exemption for Manufacturing
In order to claim the West Virginia sales tax exemption for manufacturers, the manufacturer will need to apply for a Direct Pay Permit from the West Virginia State Tax Department by completing the CST-250 – Consumer Sales and Use Tax Application for Direct Pay Permit. Once completed and submitted, the West Virginia State Tax Department will issue a Direct Pay Permit to the manufacturer, which the manufacturer can then furnish to their suppliers to stop charging them sales taxes on exempt items directly used in the manufacturing process.
How to Claim a Sales Tax Refund for Sales Tax Paid in Error to Sellers
West Virginia manufacturers are able to recover sales taxes that they have overpaid to their suppliers on exempt qualifying items directly from the West Virginia Department of Revenue by completing Form CST-240 “Claim for Refund or Credit of Sales Tax Paid to a Vendor/Reseller. Follow the format on the second page as the West Virginia Department of Revenue requires a schedule of invoices to be in a specific format. The eligible lookback period to recover any overpaid sales taxes is thirty-six months. The consultants at Agile Consulting Group have experience in recovering overpaid sales taxes from the West Virginia State Tax Department and can assist any West Virginia manufacturer with this cumbersome process.
Reach Out to Us with Questions
If you need assistance with a sales tax refund review, have any questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other sales and use tax issue, please contact a member of Agile Consulting Group’s sales tax consulting team at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.
Mike Martin
Mike began his career in Indirect Tax with the Florida Department of Revenue in 1992, conducting compliance audits in Miami. He later transitioned to consulting and moved to Birmingham, AL, with his wife and their 3 dogs, where he worked with manufacturing clients and started his own consulting companies specializing in tax recovery projects.
