Tax Type
Retail Sales and Use Tax
Description
Photo finishing equipment
Topic
Exemptions
Date Issued
01-03-1986
January 3, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear ********************
This will reply to your letter of August 5, 1985 requesting reconsideration of my determination dated July 31, 1985 in the above referenced case.
Facts
************* (hereinafter "Taxpayer"), in connection with its retail photo finishing and developing business, operates a photo finishing machine on its business premises. Taxpayer asserts that such photo finishing equipment is exempt from the sales and use tax under the provisions of §630-10-63 of the Virginia Retail Sales and Use Tax Regulations.
Determination
§630-10-63(A)(3) of the Regulations provides that the retail sales and use tax does not apply to "machinery, tools or repair parts, fuel, power, energy, or supplies used directly in manufacturing or processing...by an industrial manufacturer or processor of products for sale or resale." Furthermore, this section continues, "for a business to obtain the exemption, it first must be manufacturing or processing products for sale or resale and secondly, such production must be industrial in nature." See, §630-10-63(A)(7) of the Regulations.
As outlined in my previous determination, Standard Industrial Classification Code 7333 deems photo processors and developers such as Taxpayer to be non-industrial in nature. Furthermore, as stated in my letter of July 31, 1985, a determination of whether an operation is industrial in nature "shall be made without regard to plant size,...degree of mechanization, number of employees, or other factors relating principally to size. See, §630-10-63(7) of the Regulations.
The Virginia Supreme Court held, in the case of Golden Skillet Corporation v. Commonwealth, 214 Va 276, 199 E.E. 2d 511, that a fast food retailer did not qualify for the industrial processing exemption since its processing activities were ancillary to the retail service being provided. Similarly, in the present case, Taxpayer's film processing equipment, while essential to its in-house film development process, is ancillary to its provision of retail sales and service to its customers.
Implicit within the courts ruling in Golden Skillet, is a recognition that the same item of machinery or equipment may be used in one context in an industrial manner and in another context in a non-industrial manner.
In acquiring the photo processing equipment in the present case, taxpayer sought to provide its customers with more convenient and rapid photo processing services than it had theretofore been able to provide.
Conversely, the centralized photo processing houses which taxpayer compares itself to, operate the same or similar equipment for the purpose of mass production of tangible personal property, namely, prints, slides, etc. The emphasis in the latter case is not on convenience or rapid turnaround, but rather on providing a less expensive product within a reasonable period of time. Therefore, the nature and purpose of the photo processing equipment used by taxpayer, versus the nature and purpose of such equipment used by centralized photo processing houses, is fundamentally different.
Based on all of the foregoing I find no basis to change my position from that previously stated in my determination letter dated July 31, 1985. Taxpayer, in the present case does not qualify for exemption from the sales tax on its purchases of photo processing equipment because it is not processing in the industrial sense. Therefore, but for those items previously removed from the assessment, the remainder of the assessment is now due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner