Tax Type
Retail Sales and Use Tax
Description
Classified of an industrial manufacturer.
Topic
Property Subject to Tax
Date Issued
03-13-2002
March 13, 2002
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to tangible personal property purchased by ***** (the "Taxpayer"). I apologize for the delay in the department's response.
FACTS
The Taxpayer is a copy center and is in the business of selling copies and providing various services such as document enlargements and reductions, diazo printing, photocopying, color copying, color printing, lamination, scanning services and bid sets as well as other services. The Taxpayer seeks a ruling from the department to the effect that its operations should be properly classified as that of an industrial manufacturer.
RULING
Code of Virginia § 58.1-609.3(2) provides an exemption from the retail sales and use tax for machinery, tools, supplies and certain other items used directly in industrial manufacturing. In interpreting this statute, Title 23 of the Virginia Administrative Code (VAC) 10-210-920 specifically states that for a business to obtain this exemption, it must be manufacturing or processing products for sale or resale, and such production must be industrial in nature. Pursuant to Code of Virginia § 58.1-602, manufacturing or processing is "industrial in nature" if the business is classified in codes 10 through 14 and 20 through 39 of the Standard Industrial Classification ("SIC") Manual. Since 1983, these classifications have served as the primary determinant for classifying a business as "industrial in nature."
Standard Industrial Classification Codes
Generally, businesses engaged in manufacturing and classified under the SIC codes enumerated above are involved in transforming raw materials into useful and marketable products within a factory, plant or mill environment using power-driven machinery and materials handling equipment. Manufacturing and production is usually carried on for the wholesale market, for interplant transfer, or "to order" for industrial users, rather than for direct sale to the domestic consumer. In this instance, the on-site examination by the department's representatives revealed that the Taxpayer's services are high technology photocopying processes that incorporate computers and printers. There is no evidence of industrial activity sufficient to allow for the reclassification of the Taxpayer's operations that are properly classified in SIC sub-group 7334, businesses engaged in providing services as commercial photocopying and duplicating. I have enclosed a prior determination by the department, Public Document 97-377 (09/18/97), which further details the department's established position regarding these same issues.
Computer Hardware
The Taxpayer states that a substantial part of its business uses computer-oriented digital equipment. In supporting its case for exemption, the Taxpayer relies on a provision of Title 23 of the Virginia Administrative Code (VAC) 10-210-920, which states that computers that direct and control production qualify for exemption. The provisions of Title 23 VAC 10210-920, however, require that such computers be used directly in production within an industrial manufacturing process. As noted above, the Taxpayer's computers are not used in a manufacturing process that is industrial in nature.
I note that the Taxpayer previously purchased a high-speed duplicator with a printing capacity of 4,000 impressions or more per hour. As noted by the department's auditors in their review of the Taxpayer's operations and pursuant to Code of Virginia § 58.1-609.3(11), the exemption applies to the purchase of such equipment by businesses like the Taxpayer that are primarily engaged in the instant photocopying of products for sale or resale.
Based on the information presented, there is no basis to regard the Taxpayer's business as manufacturing in the industrial sense.
If you should have any questions regarding this matter, you may contact ***** of the department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner