BEFORE THE UTAH STATE TAX COMMISSION
PETITIONER, ) FINDINGS OF FACT,
) CONCLUSIONS OF LAW,
Petitioner, ) AND FINAL DECISION
v. ) Appeal No. 89-1793
AUDITING DIVISION OF THE )
UTAH STATE TAX COMMISSION, )
STATEMENT OF THE CASE
This matter came before the Utah State Tax Commission for a formal hearing on June 7, 1990. Paul F. Iwasaki, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was NAME, Attorney at Law. Present and representing the Respondent was NAME, Assistant Attorney General.
Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. The tax in question is sales tax.
2. The audit period in question is DATE through DATE.
3. The Petitioner operated three printing and copy centers located in CITY, CITY, and CITY.
4. The primary business conducted at two of those three locations is related to printing activities. Specifically, 75% of the business conducted at those locations is typesetting, printing, and the binding of booklets and pamphlets. The balance of the activities conducted by the Petitioner consists of providing a photocopying service to customers.
5. During the audit period, the Petitioner purchased tax exempt, three high speed, high volume photocopying machines for use in its printing business. The copying machines are utilized in the same manner as an offset printer in the Petitioner's printing business.
6. The photocopying machines were purchased to be used as substitutes for the printers, and because of the high volumes they could handle, to relieve the printers from some of their burden. The photocopiers were also purchased to expand the Petitioner's business by increasing production capacity.
7. The photocopying aspect of the Petitioner's business is served by smaller, less sophisticated copying machines.
8. The activities of the Petitioner are included within Standard Industrial Classification (SIC) number 2732-"Book Printing."
CONCLUSIONS OF LAW
Sales or leases of machinery and equipment purchased or leased by a manufacturer for use in new or expanding operations (excluding normal operating replacements) in any manufacturing facility in Utah are exempt from sales tax.
Manufacturing facility means an establishment described in SIC Code Classification 2000-3999 of the Standard Industrial Classification Manual 1972, of the Federal Executive Office of the President, Office of Management and Budget. (Utah Code Ann. §59-12-104(16).)
"Manufacturer" means a person who"
a. Functions within the activities included in SIC Code Classification 2000-3999;
b. Produces a new, reconditioned, or remanufactured product, article, substance, or commodity from raw, semi-finished, or used material; and
c. In the normal course of business, produces products for sale as tangible personal property.
"Establishment" means an economic unit of operation that is generally at a single physical location in Utah where qualifying manufacturing activities are performed. Where distinct and separate economic activities are performed at a single physical location, each activity should be treated as a separate establishment. (Utah State Tax Commission Administrative Rule R865-19-85S.)
DECISION AND ORDER
Utah Code Ann. §59-12-104(16) provides that the sales or leases of machinery and equipment purchased or leased by a manufacturer for use in any manufacturing facility in Utah, which are used in a new operation or to expand operations, are exempt from sales tax. To qualify for such an exemption, the sale or lease must meet several requirements:
1. It must be a sale or lease or machinery or equipment;
2. The machinery or equipment must be used in a new or expanding operation; and
3. The purchaser or lessee must be a manufacturer.
Utah State Tax Commission Administrative Rule R865-19-85S defines manufacturer as a person who "(a) functions within the activities included in SIC Code Classification 2000-3999; (b) produces a new, reconditioned, or remanufactured product, article, substance, or commodity from raw, semi-finished or used materials; and (c) in the normal course of business produces products for sale as tangible personal property."
In the present case, there is no question that the photocopiers are equipment or machinery, and there is no question that the photocopiers were purchased to expand the Petitioner's operation. The issue that needs to be decided is whether or not the Petitioner is a "manufacturer" within the meaning of the above mentioned statute and rule.
It is the position of the Respondent that the Petitioner's activities do not fall within SIC Code Classification 2000-3999. The Respondent contends that the activities of the Petitioner fall within SIC classification number 7332 or 7339 as either "establishments primarily engaged in reproducing drawings, plans, maps, or other copy by blueprinting or photocopying" (SIC Code Classification 7332), or as "an establishment primarily engaged in furnishing demographic services; and reproduction services other than printing, blueprinting and photocopying, and reproduction in connection with direct mail advertising." (SIC Code Classification 7339.)
The Petitioner maintains that his activities fall within SIC Code Classification numbers 2721, 2741, as a publisher or printer of periodicals or books. Alternatively, the Petitioner maintains that his activities fall within SIC Code Classification number 2751 as an establishment primarily engaged in letter press and screen commercial or job printing.
The Tax Commission finds that the Petitioner's activities are probably most appropriately categorized in industry 2732 "Book Printing". That classification applies to establishments primarily engaged in the printing, or printing and binding of books and pamphlets. Regardless of the actual industry number the Petitioner's activities fall within, the activities of the Petitioner certainly are within SIC major group 27-"Printing, Publishing, and Allied Activities."
In the present case, the Petitioner testified that approximately 75% of his business was related to the printing process; specifically, typesetting, binding and printing. The Petitioner further testified that the photocopiers in issue were used as substitutes for the printing press because of the high volume of materials it could handle within a short period of time. Based upon such use, the Tax Commission finds that the Petitioner satisfied the requirements of Rule R865-19-85S as being a manufacturer.
Having decided that the Petitioner was a manufacturer, it must be determined if the exemption applies to each of the machines since they are placed in different locations.
With respect to the photocopiers located in the Petitioner's CITY and CITY establishments, the Tax Commission finds that those photocopiers are predominantly used in the Petitioner's printing business and are therefore exempt. This is based upon the fact that printing is the predominant activity which is conducted at these locations. However, in accordance with Rule R865-19-85S, this conclusion is not applicable to other equipment that is predominantly used in non-manufacturing (printing) activities of the Petitioner, such as photocopying services.
With respect to the Petitioner's CITY establishment, the Tax Commission finds that the predominant activity there does not fall within SIC Code Classification 2000-3999 because no printing activities are conducted there. The appropriate SIC Code Classification for that establishment is 7332 "Blueprinting and Photocopying Services." The photocopier located at that establishment is, therefore, not exempt from sales or use tax.
Based upon the foregoing, the Tax Commission finds that the purchase of the photocopiers used by the Petitioner at its CITY and CITY establishments are exempt from sales and use tax and, further, that the purchase of the photocopier used at the Petitioner's CITY establishment is not. The Auditing Division is ordered to amend its audit in accordance with this decision. It is so ordered.
DATED this 10th day of August , 1990.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R.H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis