Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining; Book binding
Topic
Taxability of Persons and Transactions
Date Issued
10-18-1996
October 18, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This will reply to your letter in which you seek correction of the recent sales and use tax audit of********(the "Taxpayer"), for the period of October 1994 through February 1996.
FACTS
The Taxpayer is in the book bindery business. The Taxpayer purchased all of its book binding equipment from a government entity which had obtained such equipment through a foreclosure and asset acquisition. The content of the equipment purchased included cutting, stapling, collating, hole punching, and perfect binding machinery. Due to the fact the Taxpayer's perfect binding machinery was not operating properly, the Taxpayer performed cutting, stapling, collating, and hole punching jobs preparing material to be bound elsewhere. The Taxpayer contracted with another company to perform the binding function. The auditor denied the manufacturing exemption to the Taxpayer as the Taxpayer was not actually performing the binding function as required in Virginia Regulation (VR) 630-10-14. The Taxpayer takes the position that its equipment is an integral part of the binding process and is exempt from the tax.
DETERMINATION
VR 630-10-14 provides that "persons engaged in binding books are deemed to be fabricating such articles and the total charge for the binding is subject to the tax." This regulation goes on to say that machinery, tools, power, energy and supplies used directly in the binding process may be purchased exempt of the tax pursuant to the industrial manufacturing exemption. See Code of Virginia § 58.1-609.3(2). The regulation further provides that when the transaction is solely for the folding, trimming, or cutting of customer provided paper, and does not include the binding of books, such transaction constitutes a non-taxable service, and the machinery used in providing such services does not enjoy the manufacturing exemption.
In the present case, the Taxpayer purchased all of their machinery with the intent of binding books. The Taxpayer's intent is further evident in the fact that the Taxpayer contracted out the binding process to another bindery. It is also the intention of the Taxpayer to obtain a perfect binding machine in the future so that it may perform all book binding functions internally.
Based on all of the above, it is apparent that it was originally, and still is, the Taxpayer's intention to operate as an industrial book bindery, if it has not already begun operating in such a manner. For this reason, I find basis for granting the industrial manufacturing exemption to the Taxpayer. If the Taxpayer should abandon its intention of operating as a bindery, the department reserves the right to revoke the exemption herein granted.
If you should have any further questions, please contact****, Office of Tax Policy, at******** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11390K
Rulings of the Tax Commissioner