Tax Type
Retail Sales and Use Tax
Description
Negatives used to produce maps
Topic
Taxability of Persons and Transactions
Date Issued
03-24-1989
March 24, 1989
Dear **************
This will reply to your letter dated December 16, 1988, in which you requested a ruling on the application of the sales and use tax to your business operation.
FACTS
* * * ("The Taxpayer") operates a cartography business. The Taxpayer enters into two basic transactions. In the first transaction, the Taxpayer drafts a sketch of the map. The Taxpayer then purchases lithographic support consisting of headings, titles, etc., which is imprinted upon the sketch. Last the Taxpayer purchases photographic support, a "press-ready" negative ("the negative"), from a photography laboratory. This negative is what is used by printers to make the final finished map.
Once the negative is produced by the photography laboratory, the negative is sold by the Taxpayer without modification to clients (e.g. map companies). These clients have the negative reproduced into a final finished product for subsequent retail sale to customers.
In the second transaction, the Taxpayer contracts with an outside printer to have the negative printed into final form (i.e. the map). The Taxpayer then sells the maps to wholesalers for resale to retailers.
The Taxpayer specifically asks whether he must pay the tax on his purchases of photographic support (i.e. the "press-ready" negative).
RULING
§ 58.1-603 of the Code of Virginia imposes the sales tax "upon every person in the business of selling at retail or distributing personal property in this Commonwealth . . .." § 58.1-602(14) of the Code of Virginia defines the term "sale at retail" to mean a sale to any person for any purpose other than for resale in the form of tangible personal property . . ." (Emphasis added).
Based on the facts provided by the Taxpayer, the negatives purchased in the first transaction may be purchased exempt from the tax using a resale exemption certificate, Form ST-10 (copy enclosed). In this transaction, the Taxpayer is purchasing the negative, making no use of it, and then reselling it to the ultimate user or consumer. However, the Taxpayer will be required to collect the sales tax on such sales unless furnished with a valid certificate of exemption by its customer.
In the second transaction, the resale exemption does not apply since the Taxpayer is not purchasing the negatives for resale but instead using them in making the final finished map. However, the manufacturing exemption will apply. Virginia Code § 58.1-608(1), provides an exemption from the tax for supplies . . . used directly in . . . manufacturing . . . products for resale."
§ 630-10-63(B)(1) of the Virginia Retail Sales and Use Tax Regulations states that "industrial manufacturers . . . shall include but not be limited to businesses classified or substantially similar to other businesses classified in codes 20 through 39 of the Standard Industrial Classification ("SIC") Manual published by the U.S. Department of Commerce." Publishers of maps, such as the Taxpayer, are classified in SIC code 27 and thus qualify for exemption on items purchased for direct use in the production of maps for sale or resale. Such items may be purchased exempt from the tax Form ST-11, copy enclosed. Sales of the maps by the Taxpayer will be subject to the tax, however, unless the purchaser furnishes a valid certificate of exemption.
If you have any further questions, please contact us.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner