When did Virginia exempt charges for butchering or processing customer-supplied food from sales tax?

Subject

Historical exemption for fabrication of customer-supplied foodstuffs

Plain-English summary

Beginning July 1, 2009, Virginia exempted qualifying charges to fabricate customer-supplied meat, grains, vegetables, and other foodstuffs. Before the change, fabrication labor was generally taxable even when the customer supplied the materials.

The new exemption covered food consumed by the purchaser or the purchaser's family, food fabricated for a qualifying § 501(c)(3) or § 501(c)(4) organization, and food that the purchaser donated to such an organization. Examples included butchering a hunter's deer for family use or donation and canning an orchard owner's peaches for family consumption.

Food processed for later resale remained exempt under the existing resale rule. The fabricator had to collect tax unless it received a properly executed exemption certificate. The bulletin introduced Form ST-24 for qualifying food fabrication; resale purchasers could use Form ST-24 or Form ST-10.

What this means for you

• Customer-supplied food fabrication was not automatically exempt; the use or recipient had to qualify.
• Personal or family consumption and specified nonprofit use or donation were covered.
• Food processed for resale followed the separate resale exemption.
• Proper exemption-certificate documentation protected the fabricator from collection liability.

Common questions

Was a hunter's deer-processing charge exempt?

Yes after July 1, 2009 if the hunter and family consumed it or it was donated to a qualifying nonprofit.

Was commercial processing for resale affected?

It remained exempt under the resale rule, while the later retail sale of the food was taxable.

Citations and references

• 2009 Va. Acts chs. 36 and 832.
• Va. Code §§ 58.1-602, 58.1-609.2(3), and 58.1-609.10.
• IRC § 501(c)(3) and § 501(c)(4).
• 23 VAC 10-210-560.
• Forms ST-24 and ST-10, as identified in the bulletin.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Tax Bulletin: P.D. 09-92 / Tax Bulletin 09-7

Original ruling text

TAX BULLETIN 09-7
Virginia Department of Taxation

June 9, 2009

IMPORTANT INFORMATION REGARDING

THE RETAIL SALES AND USE TAX TREATMENT OF

CHARGES FOR THE FABRICATION OF FOODSTUFFS

Effective July 1, 2009, legislation enacted in the 2009 Session of the General Assembly, House Bill 2360 and Senate Bill 944 (2009 Acts of Assembly , Chapters 36 and 832), changes the Retail Sales and Use Tax treatment of charges for the fabrication of meats, grains, fruits, vegetables and other foodstuffs.
Current Law With Respect to the Fabrication of Foodstuffs

Under current statutory law, fabrication labor is subject to the Retail Sales and Use Tax under Va. Code § 58.1-602, which provides that a sale subject to the tax includes “the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication.”

TAX’s regulation section concerning fabrication, 23 Virginia Administrative Code ( VAC ) 10-210-560, in pertinent part, explains that

An operation which changes the form or state of tangible personal property is fabrication. . . A person regularly engaged in the fabrication of tangible personal property for sale at retail must collect and pay the tax on the sales price of the property. . . The tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work. For example, a tailor who makes an article of wearing apparel from materials furnished by the customer must collect and pay the tax on the charge for making the apparel.

Charges for the fabrication of meats, grains, fruits, vegetables and other foodstuffs are subject to tax even though a person engaged in agricultural production for market may purchase livestock and livestock products, poultry and poultry products, and farm and agricultural products exempt from the Retail Sales and Use Tax under Va. Code § 58.1-609.2 (3) when used or consumed by him and the members of his family.

The Retail Sales and Use Tax, however, is not applicable to situations where butchers, slaughterhouses and other processors of agricultural products fabricate meat or other agricultural products that will be resold as such transactions qualify for the “sale for resale” exemption.

New Law

Effective July 1, 2009, Va. Code § 58.1-609.10 has been amended to provide that the Retail Sales and Use Tax will not apply to the fabrication of animal meat, grains, vegetables, or other foodstuffs when the purchaser i) supplies the foodstuffs and they are consumed by the purchaser or his family, or ii) is an organization exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code , or iii) donates the foodstuffs to an organization exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code .

Due to this law change, on and after July 1, 2009, 23 VAC 10-210-560 will no longer be applicable to charges for the fabrication of foodstuffs that qualify for this new exemption. The regulation will be revised to address the legislation.

This law change does not affect situations where butchers, slaughterhouses and other processors of agricultural products process meat or other agricultural products that will be resold. Such transactions will continue to qualify for the “sale for resale” exemption.

TAX will issue a new exemption certificate, Form ST-24, for exempt charges for the fabrication of foodstuffs, which will be available for download at TAX's website at www.tax.virginia.gov . Charges for the fabrication of foodstuffs are subject to tax unless the fabricator receives a properly executed Retail Sales and Use Tax exemption certificate from the purchaser. Purchasers qualifying for the new exemption must present Form ST-24 for exempt transactions for fabrication of foodstuffs. Purchasers qualifying for the “sale for resale” exemption may present Form ST-24, or the resale exemption certificate, Form ST-10.

Examples

Example 1:

A hunter pays a butcher to butcher a deer carcass for consumption by him and his family. The butchering of the carcass is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.

Example 2:

A hunter pays a butcher to butcher a deer carcass that he will donate to an organization exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code. The butchering of the carcass is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.

Example 3:

A hunter donates a deer carcass to an organization that is exempt from taxation under § 501 (c)(3) or (c)(4) of the Internal Revenue Code. The organization pays a butcher to butcher the deer carcass. The butchering of the carcass is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.

Example 4:

A farmer and her family consume bread made by her from grain that she has grown and milled into flour herself. Regardless of the date, these activities are exempt from the Retail Sales and Use Tax under the agricultural exemption provided by Va. Code § 58.1-609.2 (3).

Example 5:

The owner of an orchard pays a processing facility to can peaches from the orchard for consumption by the orchard owner and his family. The canning of the peaches is fabrication. If the fabrication takes place on or after July 1, 2009, under the new law, it is not subject to the Retail Sales and Use Tax.

Example 6:

On a regular basis, a cattleman pays a processing facility to slaughter and butcher cattle in preparation for the sale of the meat by the cattleman to members of the general public at retail. The slaughter and butchering of the cattle is fabrication. Regardless of the date of the fabrication, it is not subject to the Retail Sales and Use Tax as it qualifies for the “sale for resale” exemption. The eventual sale of the meat by the cattleman to members of the general public will be subject to the tax.

Example 7:

On a regular basis, a cattleman pays a processing facility to slaughter and butcher cattle in preparation for the sale of the meat by the cattleman to a grocery chain for sale to the general public at retail. The slaughter and butchering of the cattle is fabrication. Regardless of the date of the fabrication, it is not subject to the Retail Sales and Use Tax as it qualifies for the “sale for resale” exemption. The eventual sale of the meat by the grocery chain to members of the general public will be subject to the tax.

If you have any questions regarding this Tax Bulletin, please contact TAX at: (804) 367-8037.