Tax Type
Retail Sales and Use Tax
Description
Mail folding machine; Direct Marketing Mailing Services
Topic
Exemptions
Property Subject to Tax
Date Issued
12-07-2000
December 7, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use audit assessment issued to * * * (the "Taxpayer"), for the period of January 1996 through February 1999. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides direct marketing mailing services and also does some printing. The Taxpayer will mail customer-supplied mail pieces, print mail pieces for the customer and mail them, or do printing work only. The Taxpayer purchased a folding machine which folds the mail pieces prior to inserting into envelopes. The folding machine is located away from the actual printing presses and is used to fold customer supplied items and items printed by the Taxpayer. The Taxpayer was audited and assessed tax on the folding machine. The Taxpayer believes that the folding machine is a continuation of the printing process and should be exempt from the tax. It is the Taxpayer's contention that since its printing presses are somewhat antiquated, and do not have the folding capabilities the modern printing machines have, the purchase of a separate folding machine should not be taxable. The Taxpayer is seeking removal of the folding machine from the audit findings.
DETERMINATION
Based on the information provided to this office, it appears that the Taxpayer's business has two aspects to it. The Taxpayer either: (1) provides customers with printing and mailing services, or (2) provides mailing services for customer-provided materials. It is understood that the Taxpayer's printing operation enjoys the industrial processing exemption afforded under Code of Virginia § 58.1-609.3(2), and that this aspect of the operation is classified under Industry Group 2759 of the Standard Industrial Classification (SIC) Manual. The item at issue in this appeal is the purchase of a folding machine, and related parts, used to fold not only mail items printed by the Taxpayer, but also to fold mail items furnished by customers. The question at issue is whether the folding machine is a continuation of the printing process and exempt, or used by the Taxpayer after the completion of the exempt printing function and taxable.
The industrial manufacturing exemption set forth in Code of Virginia § 58.1609.3(2) has been interpreted by the department in Title 23 of the Virginia Administrative Code (VAC) 10-210-920, copy enclosed. Title 23 VAC 10-210-920 provides that the integrated production process starts with the handling and storage of raw and materials and continues through until the product is completed for sale.
It is my understanding that the Taxpayer's printing equipment is somewhat antiquated, and does not have the folding function many of the so-called "modern" printing presses have. This being the case, and based on a reading of Title 23 VAC 10-210-920 above, I find that the direct mail items produced by the Taxpayer are not ready for sale, or mailing, until the mail items are folded and inserted into envelopes. For this reason, I find that the folding machine is used in an exempt activity when handling items printed by the Taxpayer. However, the folding machine is used in a taxable activity when used in the Taxpayer's mailing service operation to mail customer-supplied items. Therefore, the folding machine is used in a dual capacity, one being exempt, the other taxable.
Title 23 VAC 10-210-920.D provides for the application of the tax when a single piece of equipment is used in both taxable and exempt activities as follows:
When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and other of which is not (taxable), the sales tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in non-exempt activities. Likewise, the item will be totally exempt from tax if the preponderance of its use is in exempt production activities.
Based on the above, the application of the tax to the folding machine will be determined based on the preponderance of use. I am referring this audit back to the for further review and possible revisions.
If you should have any questions, please contact * * * Office of Tax Policy, at * * *
Danny M. Payne
Tax Commissioner
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use audit assessment issued to * * * (the "Taxpayer"), for the period of January 1996 through February 1999. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides direct marketing mailing services and also does some printing. The Taxpayer will mail customer-supplied mail pieces, print mail pieces for the customer and mail them, or do printing work only. The Taxpayer purchased a folding machine which folds the mail pieces prior to inserting into envelopes. The folding machine is located away from the actual printing presses and is used to fold customer supplied items and items printed by the Taxpayer. The Taxpayer was audited and assessed tax on the folding machine. The Taxpayer believes that the folding machine is a continuation of the printing process and should be exempt from the tax. It is the Taxpayer's contention that since its printing presses are somewhat antiquated, and do not have the folding capabilities the modern printing machines have, the purchase of a separate folding machine should not be taxable. The Taxpayer is seeking removal of the folding machine from the audit findings.
DETERMINATION
Based on the information provided to this office, it appears that the Taxpayer's business has two aspects to it. The Taxpayer either: (1) provides customers with printing and mailing services, or (2) provides mailing services for customer-provided materials. It is understood that the Taxpayer's printing operation enjoys the industrial processing exemption afforded under Code of Virginia § 58.1-609.3(2), and that this aspect of the operation is classified under Industry Group 2759 of the Standard Industrial Classification (SIC) Manual. The item at issue in this appeal is the purchase of a folding machine, and related parts, used to fold not only mail items printed by the Taxpayer, but also to fold mail items furnished by customers. The question at issue is whether the folding machine is a continuation of the printing process and exempt, or used by the Taxpayer after the completion of the exempt printing function and taxable.
The industrial manufacturing exemption set forth in Code of Virginia § 58.1609.3(2) has been interpreted by the department in Title 23 of the Virginia Administrative Code (VAC) 10-210-920, copy enclosed. Title 23 VAC 10-210-920 provides that the integrated production process starts with the handling and storage of raw and materials and continues through until the product is completed for sale.
It is my understanding that the Taxpayer's printing equipment is somewhat antiquated, and does not have the folding function many of the so-called "modern" printing presses have. This being the case, and based on a reading of Title 23 VAC 10-210-920 above, I find that the direct mail items produced by the Taxpayer are not ready for sale, or mailing, until the mail items are folded and inserted into envelopes. For this reason, I find that the folding machine is used in an exempt activity when handling items printed by the Taxpayer. However, the folding machine is used in a taxable activity when used in the Taxpayer's mailing service operation to mail customer-supplied items. Therefore, the folding machine is used in a dual capacity, one being exempt, the other taxable.
Title 23 VAC 10-210-920.D provides for the application of the tax when a single piece of equipment is used in both taxable and exempt activities as follows:
When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and other of which is not (taxable), the sales tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in non-exempt activities. Likewise, the item will be totally exempt from tax if the preponderance of its use is in exempt production activities.
Based on the above, the application of the tax to the folding machine will be determined based on the preponderance of use. I am referring this audit back to the for further review and possible revisions.
If you should have any questions, please contact * * * Office of Tax Policy, at * * *
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner