Document Number
95-63
Tax Type
Retail Sales and Use Tax
Description
Manufacturing; Photoplotters
Topic
Taxability of Persons and Transactions
Date Issued
03-29-1995
March 29, 1995



Re: §58.1 -1821 Application: Sales & Use Tax


Dear**********

This will reply to your letter of November 4,1994 in which you seek correction of the department's retail sales and use tax audit assessment for ******** (the "Taxpayer" ) .
FACTS

The Taxpayer is a manufacturer of printed wiring boards. An audit for the period August,1991 through July,1994 produced an assessment for the Taxpayer's use of a photoplotter and the photoplotter service contract. The Taxpayer argues that digital data (design data) is received and is converted through CAM (Computer Aided Manufacturing) equipment (photoplotter). The photoplotter prints the design image on mylar film, which is then used to make a diazo (negative). The diazo is then used for the etching of the design image on the circuit board. In the event that another negative is needed, the mylar is held by the Taxpayer and filed away for future use.

The Taxpayer provides that under Code of Virginia §58.1 -602 the photoplotter is part of an integrated manufacturing process and therefore should be removed from the audit.
DETERMINATION

Code of Virginia §58.1 -609.3(2)(iii) exempts "machinery or tools or repair parts ...used directly in processing, manufacturing...products for sale or resale...." The term "used directly" is defined in Code of Virginia §58.1-602 as "those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing or mining process...." Virginia Regulation 630-10-63 further provides that an exemption is available for subprocessing activities which produce tangible personal property used directly in the main manufacturing or processing activity.

In the case at hand, the Taxpayer receives the design data in the form of digital data, which may be adjusted to some extent. After all changes have been made, the photoplotter prints the data on mylar in a graphical pictorial format. This mylar is used to make the diazo (negative). The diazo is then used in the production process, and the mylar is stored away for future use.

The industrial exemption is limited by statute to the production line of a plant. While the diazo, which is used in the main production process, is exempt as part of the integrated manufacturing process, the use of the mylar, on which the graphic is printed by the photoplotter, is a step which is preparatory to production and is not within the scope of the integrated manufacturing process (P. D. 91-291, November 18, 1991) copy enclosed .

Consequently, l find the assessment issued by the Department to be correct as assessed. To avoid the accrual of additional interest, please have the payment for returned to the Office of Tax Policy within 30 days. The payment should be sent to*********in the Department's Office of Tax Policy P. O. Box 1880, Richmond, Virginia 23282.

If you have any questions or need any additional assistance in this matter, please call***********.

                        • Sincerely,



                          Danny M. Payne
                          Tax Commissioner

OTP/8658Q

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46