Tax Type
Retail Sales and Use Tax
Description
Microfilm and microfiche
Topic
Taxability of Persons and Transactions
Date Issued
01-15-1987
Superseded by PD 05-02
Re: §58.1-1821 Application/Sales and Use Tax
Dear********************
This will reply to your letters of April 2, 1986 and June 19. 1986, in which you submit an application for correction of sales and use tax assessed to******** as the result of a recent audit.
************** (Taxpayer) engages in the production and sale of microfiche, whereby documents or information furnished by customers are copied onto microfilm. A recent audit of the taxpayer produced an assessment for its failure to remit the sales and use tax on leases and maintenance agreements on equipment used in the production of microfiche for sale to customers. The taxpayer contests this assessment, asserting that the production of microfiche is an industrial manufacturing activity qualifying for exemption under Virginia Regulation 630-10-63.
Virginia Regulation 630-10-65.3 sets forth the application of the tax to sales of microfilm and microfiche copies of documents. As noted in the regulation, such sales are subject to the tax based upon the total price charged to customers, including separately stated charges for services. However, the regulation does not fully address the application of the tax to machinery, tools, and supplies used in the production of microfilm and microfiche copies of documents.
The production of microfilm and microfiche copies can be analogized to the photocopying of documents, a process historically considered by the department to be nonindustrial in nature. However, in analyzing this situation, it is apparent that entirely new products are created as the result of the microfilming process, rather than simple reproductions of customer furnished originals. Accordingly, machinery, tools, and supplies used directly in the production of microfilm and microfiche copies for sale or resale qualify for the industrial manufacturing exemption and may be purchased or leased exclusive of the tax in the future.
With respect to the present audit, however, I do not find basis for relief of the tax assessed on items used in microfilm and microfiche production. The taxpayer was not held liable in this audit for its failure to collect the sales tax from customers on its sale of microfilm and microfiche copies due to the fact that Virginia Regulation 630-10-65.3 did not become effective until January 1, 1985. Prior to the audit, the taxpayer in effect treated itself as the provider of a nontaxable service; nonetheless, the taxpayer did not remit the tax on its machinery, tools, supplies, etc. used in producing its products.
Inasmuch as the taxpayer did not collect the tax on its sales or remit the tax on the machinery, tools, and supplies used in its operations, I find the assessment of tax upon articles used in microfilm and microfiche production to be reasonable in this case.
Sincerely,
W. H. Forst
Tax Commissioner
January 15, 1987
Re: §58.1-1821 Application/Sales and Use Tax
Dear********************
This will reply to your letters of April 2, 1986 and June 19. 1986, in which you submit an application for correction of sales and use tax assessed to******** as the result of a recent audit.
FACTS
************** (Taxpayer) engages in the production and sale of microfiche, whereby documents or information furnished by customers are copied onto microfilm. A recent audit of the taxpayer produced an assessment for its failure to remit the sales and use tax on leases and maintenance agreements on equipment used in the production of microfiche for sale to customers. The taxpayer contests this assessment, asserting that the production of microfiche is an industrial manufacturing activity qualifying for exemption under Virginia Regulation 630-10-63.
DETERMINATION
Virginia Regulation 630-10-65.3 sets forth the application of the tax to sales of microfilm and microfiche copies of documents. As noted in the regulation, such sales are subject to the tax based upon the total price charged to customers, including separately stated charges for services. However, the regulation does not fully address the application of the tax to machinery, tools, and supplies used in the production of microfilm and microfiche copies of documents.
The production of microfilm and microfiche copies can be analogized to the photocopying of documents, a process historically considered by the department to be nonindustrial in nature. However, in analyzing this situation, it is apparent that entirely new products are created as the result of the microfilming process, rather than simple reproductions of customer furnished originals. Accordingly, machinery, tools, and supplies used directly in the production of microfilm and microfiche copies for sale or resale qualify for the industrial manufacturing exemption and may be purchased or leased exclusive of the tax in the future.
With respect to the present audit, however, I do not find basis for relief of the tax assessed on items used in microfilm and microfiche production. The taxpayer was not held liable in this audit for its failure to collect the sales tax from customers on its sale of microfilm and microfiche copies due to the fact that Virginia Regulation 630-10-65.3 did not become effective until January 1, 1985. Prior to the audit, the taxpayer in effect treated itself as the provider of a nontaxable service; nonetheless, the taxpayer did not remit the tax on its machinery, tools, supplies, etc. used in producing its products.
Inasmuch as the taxpayer did not collect the tax on its sales or remit the tax on the machinery, tools, and supplies used in its operations, I find the assessment of tax upon articles used in microfilm and microfiche production to be reasonable in this case.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner