Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Proof press
Topic
Taxability of Persons and Transactions
Date Issued
08-22-1995
August 22, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will respond to your letter of June 30, 1995 in which you seek correction of a sales and use tax assessment for your company,**************(the "Taxpayer"), for the period May 1991 through April 1994.
FACTS
The Taxpayer, a company engaged primarily in the rotogravure printing of newspaper advertising supplements, contests the tax assessed in a recent audit with respect to a proof press. The proof press is used to run a proof of the printed product prior to actual production. The sample job is reviewed to ensure that it meets the customer's requirements. Thus, you suggest that the proof press is used directly in the production process and is exempt from the tax. However, the auditor determined that the press is used only in pre-production activities and thus is not entitled to exemption from the tax.
You seek waiver of the tax, interest and penalty assessed with respect to this item.
DETERMINATION
Code of Virginia § 58.1-609.3(b)(v) provides that the retail sales and use tax does not apply to "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." Subdivision 3 of Code of Virginia § 58.1-609.6 describes an exempt publication as one which is "issued daily, or regularly at average intervals not exceeding three months," and advertising supplements and any other printed matter ultimately distributed with or as part of such publications. Thus, the exemption afforded in Code of Virginia § 58.1-609.3(b)(v) is applicable to the Taxpayer to the extent that the equipment, supplies, etc., are used directly to produce the advertising supplements.
The term "used directly" is defined in VR 630-10-63(b)(2) as "those activities that are an integral part of the production of a product." As the proof press held taxable by the auditor is only used in running a "proof" of the printed materials for review by the customer to ensure that it meets his requirements and is not used in the actual printing/production of the printed material, I find that it was appropriately held taxable by the auditor. The proofing process is part of pre-production activities those activities which prepare materials for production - which are taxable. However, had the press been used more than 50% of the time in the actual production of the printed materials, it would have qualified for exemption from the tax.
With regard to your suggestion that the cylinders and press are used in exempt quality control activities, you should note that the department has held that the quality control exemption only applies to testing or monitoring activities that occur during the production process. In the instant case, the testing occurs prior to the process and thus the exemption is not applicable. (See P.D. 93-135 (6/4/93), copy enclosed.)
Accordingly, the department has no alternative but to deny your request for the refund of the tax, interest, and penalty assessed with respect to the proof press. If you have any questions about this matter, please contact*********in my Office of Tax Policy at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9948H
Rulings of the Tax Commissioner