Tax Type
Corporation Income Tax
Description
Deficiency assessment, commercial bank that uses in-house printing equipment
Topic
Collection of Tax
Date Issued
01-28-2000
January 28, 2000
Re: § 58-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of a sales and use tax audit conducted on ***** (the "Taxpayer") for the period January 1996 through December 1998.
FACTS
The Taxpayer is a commercial bank that uses in-house printing equipment to print checks for sale to its depositors. The Taxpayer maintains that the assessment of use tax on its purchase of check printing equipment is erroneous. The Taxpayer believes that the printing of checks for retail sale is an exempt manufacturing activity under Code of Virginia § 58.1-609.3(2).
DETERMINATION
Code of Virginia § 58.1-609.3(2) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacements thereof... used directly in... manufacturing... products for sale or resale." The enclosed copy of Title 23 of the Virginia Administrative Code (VAC) 10-210-920(B)(1) defines "industrial manufacturers and industrial processors" to include "establishments engaged in the mechanical or chemical transformation of materials or substances into new products."
This regulation continues as follows:
These establishments (hereinafter referred to as "industrial manufacturers") are usually described as plants, factories or mills and characteristically use power driven machines and materials handling equipment. The production activities of such establishments are usually carried on for the wholesale market or to order for industrial users, rather than for direct sale to domestic consumers. The term "industrial manufacturer" as used herein shall include but not be limited to businesses classified or substantially similar to other businesses classified in codes 20 through 39 of the Standard Industrial Classification (hereinafter "SIC") Manual published by the U.S. Department of Commerce.
The Taxpayer is a commercial bank and is primarily engaged in providing financial services. A review of the SIC Manual shows that commercial banks are classified in industry code 60, depository institutions. Based on the Taxpayer's classification in the SIC Manual, it is not an industrial manufacturer. In addition, the regulation cited above states that "[e]stablishments which manufacture or process tangible personal property as an incidental part of a retail or service business are generally deemed to be engaged in nonindustrial activities." This is the department's longstanding policy. While I am sympathetic with the Taxpayer, the printing of checks by a commercial bank for sale to depositors is a nonindustrial activity for sales and use tax purposes. Therefore, the assessment of use tax on the check printing equipment was correct.
I would like to thank the Taxpayer for the complimentary remarks made about the department's auditor in its letter. A copy will be sent to the auditor's supervisor. If you have any questions concerning this determination, please contact **** at *****.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22370S
Re: § 58-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of a sales and use tax audit conducted on ***** (the "Taxpayer") for the period January 1996 through December 1998.
FACTS
The Taxpayer is a commercial bank that uses in-house printing equipment to print checks for sale to its depositors. The Taxpayer maintains that the assessment of use tax on its purchase of check printing equipment is erroneous. The Taxpayer believes that the printing of checks for retail sale is an exempt manufacturing activity under Code of Virginia § 58.1-609.3(2).
DETERMINATION
Code of Virginia § 58.1-609.3(2) provides an exemption from the retail sales and use tax for "machinery or tools or repair parts therefor or replacements thereof... used directly in... manufacturing... products for sale or resale." The enclosed copy of Title 23 of the Virginia Administrative Code (VAC) 10-210-920(B)(1) defines "industrial manufacturers and industrial processors" to include "establishments engaged in the mechanical or chemical transformation of materials or substances into new products."
This regulation continues as follows:
These establishments (hereinafter referred to as "industrial manufacturers") are usually described as plants, factories or mills and characteristically use power driven machines and materials handling equipment. The production activities of such establishments are usually carried on for the wholesale market or to order for industrial users, rather than for direct sale to domestic consumers. The term "industrial manufacturer" as used herein shall include but not be limited to businesses classified or substantially similar to other businesses classified in codes 20 through 39 of the Standard Industrial Classification (hereinafter "SIC") Manual published by the U.S. Department of Commerce.
The Taxpayer is a commercial bank and is primarily engaged in providing financial services. A review of the SIC Manual shows that commercial banks are classified in industry code 60, depository institutions. Based on the Taxpayer's classification in the SIC Manual, it is not an industrial manufacturer. In addition, the regulation cited above states that "[e]stablishments which manufacture or process tangible personal property as an incidental part of a retail or service business are generally deemed to be engaged in nonindustrial activities." This is the department's longstanding policy. While I am sympathetic with the Taxpayer, the printing of checks by a commercial bank for sale to depositors is a nonindustrial activity for sales and use tax purposes. Therefore, the assessment of use tax on the check printing equipment was correct.
I would like to thank the Taxpayer for the complimentary remarks made about the department's auditor in its letter. A copy will be sent to the auditor's supervisor. If you have any questions concerning this determination, please contact **** at *****.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22370S
Rulings of the Tax Commissioner