Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Printing, typesetting, and photographic equipment
Topic
Taxability of Persons and Transactions
Date Issued
08-12-1994
August 12, 1994
Re: §58.1-1821 Appeal: Retail Sales and Use Tax
Dear**********
This will respond to your correspondence in which you seek correction of a retail sales and use tax assessment for**********(the "Taxpayer").
FACTS
The Taxpayer is involved in providing output from high-end computer printers, imagesetters and film recorders for customer-prepared documents. audit of the Taxpayer for the period March, 1990 through March, 1993 produced an assessment for its failure to remit use tax on purchases of equipment and supplies utilized in this aspect of the business.
The Taxpayer contends the equipment and supplies qualify for the industrial manufacturing exemption. The Taxpayer likens its activities to those of a printer or typesetter. The Taxpayer contends the characterization of its business as essentially a service business is in error, and that while it does offer consulting, training and production services, the preponderance of use of the items in question is in exempt manufacturing.
DETERMINATION
Va. Code §58.1-609.3(2) provides an exemption from the retail sales and use tax for industrial manufacturers and processors. Further, the code and the regulations promulgated thereunder provide that businesses classified or substantially similar to businesses classified in codes 10 through 14 and 20 through 39 of the Standard Industrial Classification (SIC) Manual will be entitled to the exemption. Additionally, the department has traditionally considered printing processes and photo processing which is not an incidental part of a retail establishment to be industrial operations.
A review of the Taxpayer's activities shows it does not fit into any one main category of the SIC codes. Its activities could be classified under a number of SIC codes including: 2759 Commercial Printing, 2791 Typesetting, 2796 Platemaking and Related Services, 7336 Commercial Art and Graphic Design, 7374 Computer Processing and Data Preparation, 7379 Computer Related Service, 7384 Photofinishing Laboratories, and 7812 Motion Picture and Video Tape Production.
Of these activities, those in SIC codes 2759, 2791 and 2796 clearly fall within those delineated by law as qualifying for the manufacturing exemption; those falling within SIC code 7384 have previously been deemed industrial operations. In order to qualify for the exemption, each item of equipment must be used more than 50% of the time to produce products in these activities for sale to customers, rather than in the service of producing original documents for customers or providing other services, such as consulting, training, etc. Therefore, when it can been shown that the preponderance of use of the equipment relates to exempt activities, it will qualify for the exemption. The Taxpayer has provided documentation regarding the contested items which reveals the preponderance of use of the machinery and supplies in question is in exempt activities.
Based on the foregoing, I find that the Taxpayer is deemed an industrial manufacturer and as the preponderance of use of the machinery and supplies is in exempt activities, the audit will be adjusted accordingly. You will shortly receive an updated bill for the noncontested tax portion of the audit of *********with interest accrued to date which should be paid in full within 30 days to avoid additional interest and collection actions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/759lB
Rulings of the Tax Commissioner