Tax Type
Retail Sales and Use Tax
Description
Electronic pre-press activity; Commercial printing business
Topic
Exemptions
Property Subject to Tax
Date Issued
12-07-2000
December 7, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to (the "Taxpayer"), for the period of July 1995 through June 1998. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the commercial printing business and enjoys the manufacturing exemption afforded under Code of Virginia § 58.1-609.3(2). The Taxpayer's process involves three major steps. The first step is page composition and plate making. Before the advent of current computer technology, this process was referred to as "typesetting." This process is currently referred to as "electronic prepress activities." As a result of the current audit, the Taxpayer was assessed tax on computer hardware and software used by the Taxpayer in electronic prepress activities. The Taxpayer is requesting that these items be removed from the audit, based on the fact that such items are used directly in exempt activities as provided in Title 23 of the Virginia Administrative Code (VAC) 10-210-6020.
DETERMINATION
Based on the information provided to this office by the auditor and the Taxpayer, the Taxpayer is an industrial printer and falls under Industry Group Number 2759 of the Standard Industrial Classification (SIC) Manual. Title 23 VAC 10-210-6020 (copy enclosed) addresses the department's position with respect to "typesetting" and "electronic prepress" as they relate to the printing industry. "Electronic prepress" is defined under VAC 10-210-6020 as follows:
"Electronic prepress" means any process involved in taking manuscripts, conventionally supplied artwork, electronically supplied artwork, electronically supplied keystrokes, and other client materials and formatting these materials into electronic commands so that they can be output as film or paper to image-setting output devices or prepared in such a way that they can be distributed electronically by way of any electronic or magnetic media. It also includes the various proofing steps that are required prior to final output or distribution by way of any electronic or magnetic media.
"Typesetting" is defined to mean "the process by which specialized equipment is used to accept front-end commands and to transform them into text characters according to the font, type size, and other instructions of a composition system and include electronic prepress, as defined in this section." Title 23 VAC 10-210-6020 goes on to provide that such functions qualify for the industrial manufacturing exemption provided under Code of Virginia § 58.1-609.3(2), when performed by an industrial printer or sold to an industrial printer.
Based on the all of the above, the computer hardware and software at issue in this case may qualify for the exemption, provided the preponderance of its use was in an exempt manner. Title 23 VAC 10-210-920.D, copy enclosed, provides for the application of the tax when a single piece of equipment is used in both taxable and exempt activities as follows:
When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and other of which is not (taxable), the sales tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in non-exempt activities. Likewise, the item will be totally exempt from tax if the preponderance of its use is in exempt production activities.
Based on the above, I am referring this audit back to the * * * for further review and possible revisions. If revisions are indeed necessary, a revised notice of audit assessment will be mailed to the Taxpayer.
If you should any questions, please contact * * * Office of Tax Policy, at * * *
Danny M. Payne
Tax Commissioner
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to (the "Taxpayer"), for the period of July 1995 through June 1998. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the commercial printing business and enjoys the manufacturing exemption afforded under Code of Virginia § 58.1-609.3(2). The Taxpayer's process involves three major steps. The first step is page composition and plate making. Before the advent of current computer technology, this process was referred to as "typesetting." This process is currently referred to as "electronic prepress activities." As a result of the current audit, the Taxpayer was assessed tax on computer hardware and software used by the Taxpayer in electronic prepress activities. The Taxpayer is requesting that these items be removed from the audit, based on the fact that such items are used directly in exempt activities as provided in Title 23 of the Virginia Administrative Code (VAC) 10-210-6020.
DETERMINATION
Based on the information provided to this office by the auditor and the Taxpayer, the Taxpayer is an industrial printer and falls under Industry Group Number 2759 of the Standard Industrial Classification (SIC) Manual. Title 23 VAC 10-210-6020 (copy enclosed) addresses the department's position with respect to "typesetting" and "electronic prepress" as they relate to the printing industry. "Electronic prepress" is defined under VAC 10-210-6020 as follows:
"Electronic prepress" means any process involved in taking manuscripts, conventionally supplied artwork, electronically supplied artwork, electronically supplied keystrokes, and other client materials and formatting these materials into electronic commands so that they can be output as film or paper to image-setting output devices or prepared in such a way that they can be distributed electronically by way of any electronic or magnetic media. It also includes the various proofing steps that are required prior to final output or distribution by way of any electronic or magnetic media.
"Typesetting" is defined to mean "the process by which specialized equipment is used to accept front-end commands and to transform them into text characters according to the font, type size, and other instructions of a composition system and include electronic prepress, as defined in this section." Title 23 VAC 10-210-6020 goes on to provide that such functions qualify for the industrial manufacturing exemption provided under Code of Virginia § 58.1-609.3(2), when performed by an industrial printer or sold to an industrial printer.
Based on the all of the above, the computer hardware and software at issue in this case may qualify for the exemption, provided the preponderance of its use was in an exempt manner. Title 23 VAC 10-210-920.D, copy enclosed, provides for the application of the tax when a single piece of equipment is used in both taxable and exempt activities as follows:
When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and other of which is not (taxable), the sales tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in non-exempt activities. Likewise, the item will be totally exempt from tax if the preponderance of its use is in exempt production activities.
Based on the above, I am referring this audit back to the * * * for further review and possible revisions. If revisions are indeed necessary, a revised notice of audit assessment will be mailed to the Taxpayer.
If you should any questions, please contact * * * Office of Tax Policy, at * * *
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner