Document Number
Tax Type
Retail Sales and Use Tax
Graphics Computer
Taxability of Persons and Transactions
Date Issued
November 7, 1988

Re: §58.1-1821 Application/Retail Sales and Use Tax


This will reply to your letter of July 1, 1988, seeking the correction of an assessment issued in the above referenced case for the period July 1985, through February 1988.
************** ("The Taxpayer") is a graphics and exhibits designer. This appeal stems from the assessment of use tax on a Dicomed graphics computer ("computer"). The Taxpayer asserts that the computer is entitled to the industrial exemption set forth in Virginia Code §58.1-608(1).

The computer is used for the production of customized transparencies which are resold to publishers, designers, builders, studios, marketing agencies, etc. In making the transparencies, the computer generates images on its screen which are created by an operator. After the images are created, the operator can then store them in memory and they may be recalled if required for alterations, combining, separating or re-coloring. If the image is acceptable to the operator, the image is transferred to a printer which produces the transparency.

The Taxpayer also contests the assessment of penalties.

§58.1-608(1 ) of the Virginia Code provides an exemption from the sales and use tax for "machinery...used directly in...manufacturing...products for resale." In Golden Skillet v. Commonwealth. 214 Va. 276, 278 (1973), the Virginia Supreme Court stated, reading the above statute as a whole, that: "it is intended. . . to provide exemption for machinery and tools used in...manufacturing...products for sale or resale only in the industrial sense.

In light of the above statute and Golden Skillet, the Taxpayer must first produce products for sale or resale and second, the production must be industrial in nature in order for the manufacturing exemption to apply. Since the Taxpayer produces transparencies for sale, the first part of the test for the exemption is satisfied. Thus, it must be determined whether the Taxpayer's production activities are "industrial" in nature.

Virginia Code §58.1-602(9). and Virginia Retail Sales and Use Tax Regulation §630-10-63(B)(1) provide that any business classified in codes 10-14 and 20-39 of the Standard Industrial Classification Manual ("SIC") will be entitled to the industrial exemption under Virginia Code §58.1-608(1). The SIC Code of the Taxpayer is within Group 73 rather than within codes 10-14 or 20-39.

Further, following the line of reasoning of Golden Skillet and Commonwealth v. Orange-Madison, 220 Va. 655, (1980), I cannot conclude that the Taxpayer's production of transparencies is industrial in nature since the exemption is available only to "true manufacturers or industries." See Commissioner's Determination Letter dated February 27, 1988, copy enclosed, which addresses the application of the manufacturing exemption to a business similar in nature to that of the Taxpayer.

Therefore, based on the foregoing, the computer used by the Taxpayer does not qualify for the industrial exemption set forth in Virginia Code §58.1-602(1) and such computer equipment was properly included in the department's audit.

The Taxpayer also contests the assessment of penalties for inadequate levels of compliance. The Taxpayer contends that its compliance level is a result of internal problems. Based on the facts and circumstances of this case I find basis for the waiver of all penalties and the department will issue a revised Notice of Assessment.

If I can be of further assistance, please contact us.


W. H. Forst
Tax Commissioner

Last Updated 08/25/2014 16:46