Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Newspaper presses
Topic
Taxability of Persons and Transactions
Date Issued
10-07-1994
October 7, 1994
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear*********
This will respond to your letter of March 11,1994 in which you seek correction of a sales and use tax assessment to ****************(the "Taxpayer"), for the period January 1990 through October 1992.
FACTS
The Taxpayer, a newspaper publisher, contests the assessment of tax on supplies used in the testing of newspaper printing presses in another country. The supplies consisted of newsprint, ink and plates normally used by the Taxpayer in the production of its newspaper. The auditors held the test supplies taxable as they were first shipped to Virginia and later shipped to the other country for use in the testing of the presses and not in the actual production of an exempt publication.
DETERMINATION
Code of Virginia § 58.1 -609.3(2)(v) provides an exemption from the retail sales and use tax for "equipment, printing or supplies used directly to produce a publication described in subdivision 3 of §58.1 -609.6 whether it is ultimately sold at retail or for resale or distribution at no cost." Since the newspaper produced by the Taxpayer is an exempt publication under subdivision 3 of Code of Virginia §58.1-609.6, the Taxpayer generally is entitled to the above cited exemption. However, the exemption is not all encompassing as it is limited to those items "used directly" in the production of the newspaper.
Code of Virginia §58.1 -602 defines the term "used directly" as including those activities that are an integral part of the production of a product. While supplies such as newsprint, ink, etc. are exempt from the tax when used directly in the production of a newspaper, in the instant case, since the supplies are merely used to test the presses and not to produce a publication, they are taxable. Furthermore, VR 630-10-63(C)(2) states that "[t]esting for the purpose of improving administrative efficiency or any other testing not relating to quality control is taxable." The testing in the instant case is not considered quality control as the equipment is not yet part of the production process. Accordingly, the auditor was correct in holding the supplies at issue taxable.
With respect to your argument on the applicability of the exemption for interstate and foreign commerce, Code of Virginia §58.1-604 imposes the use tax on "the use or consumption of tangible personal property in this State..." The term "use" is defined in Code of Virginia § 58.1 -602 as "the exercise of any right or power over tangible personal property incident to the ownership thereof... " Furthermore, VR 630-10-109(A) provides that "[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." (Emphasis added) The term "storage" is defined in Code of Virginia § 58.1-602 as "any keeping or retention of tangible personal property for use, consumption or distribution in this State, or for any purpose other than sale at retail in the regular course of business."
Thus, even if the supplies were intended to be delivered to a location outside the state, this does not preclude the imposition of the sales and use tax on such items, when held in Virginia prior to delivery outside the state. This position is supported by the opinion of the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va 852, 263 S.E. 2d 413 (1980) which held taxable the storage of tangible personal property in Virginia even though the property would ultimately be shipped outside of the state. The tax liability is incurred by the Taxpayer at the moment the property is brought into Virginia and stored for use by the Taxpayer. Further, the Court held that "if a taxable event occurs in Virginia, subsequent delivery of property outside this State does not immunize the taxable event."
Accordingly, the department finds no basis to revise the assessment as issued.
If you have any questions about this matter, please contact**************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7755H
Rulings of the Tax Commissioner