BEFORE THE UTAH STATE TAX
COMMISSION
__________________________________
XXXXX
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
:
AUDITING
DIVISION OF THE : Appeal No. 90-1056
UTAH STATE TAX COMMISSION, :
: Account No.
XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission pursuant to the Petitioner's
Petition for Redetermination, filed XXXXX.
At the request of the parties, no formal hearing was held and the matter
is decided based upon the written briefs supplied by each party.
Based
upon the written briefs filed by each party, the Tax Commission hereby makes
its:
FINDINGS OF FACT
1.
The tax in question is sales tax.
2.
The audit period in question is XXXXX, through XXXXX.
3.
The Petitioner is a XXXXX engaged in the business of publishing XXXXX,
including the XXXXX.
4.
The printing of XXXXX is performed at XXXXX sites throughout the United
States. XXXXX of those locations, of
which Utah is one, are "XXXXX sites." At XXXXX sites, the printing of the XXXXX is done by XXXXX not
owned by the Petitioner.
5.
In XXXXX, the Petitioner entered into an agreement with XXXXX, a Utah XXXXX, to
print and distribute copies of XXXXX.
6.
In furtherance of that agreement, the Petitioner was obligated to, among other
things, provide the following: (1) purchase XXXXX and XXXXX used in the
production of the XXXXX; and (2) purchase and install XXXXX equipment necessary
for the printing of the XXXXX printed by XXXXX.
7.
The XXXXX equipment and other equipment purchased by the Petitioner was used to
convert the signal, produce a negative, or used in the mailroom for stacking,
bundling, or labeling the XXXXX.
8.
XXXXX began printing XXXXX for distribution to the public on XXXXX.
9.
The production of XXXXX begins with the input and editing of articles and
features using the "XXXXX" computer at the headquarters in
XXXXX. The XXXXX system allows a XXXXX
to be manipulated and printed by high-speed computer typesetters. The XXXXX output is then formatted into
XXXXX in the XXXXX room. The XXXXX are
then photographed and a XXXXX is produced.
A XXXXX converts the XXXXX to a XXXXX which is transmitted via satellite
to the XXXXX stations at each XXXXX. At
the XXXXX, the signal is converted by computer to a XXXXX that exposes XXXXX
and produces a XXXXX (the XXXXX equipment).
The XXXXX is processed and an offset XXXXX is produced. XXXXX then print copies of the XXXXX which
are distributed by XXXXX to their distribution points.
10.
By way of its Petition for Redetermination and request for refund, the
Petitioner sought refund of $$$$$, plus interest, for sales tax paid on the
above described equipment. The
Petitioner maintained that such items were exempt from sales tax as provided
for by Utah Code Ann. §59-12-104(16) and Utah State Tax Commission
Administrative RuleR865-19S-85.
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.
"Machinery"
means electronic or mechanical machines to be incorporated into a manufacturing
or assembling process from the initial stage where actual processing begins
through the completion of the finished end product, including final processing,
finishing or packaging of articles which are for sale in commerce.
"Equipment"
means any independent device separate from any machinery but essential to an
integrated or continuous manufacturing or assembly process or any sub-unit
comprising a component of any machinery or auxiliary thereof including such
items as dies, jigs, patterns, molds, and similar items used in manufacturing,
processing, or assembling. Qualifying
equipment also includes devices necessary to the control or operation of
machinery and equipment qualifying under this rule even though not located in
the specific manufacturing area. (Utah
State Tax Commission Administrative RuleR865-19S-85.)
DECISION AND ORDER
In
the present case, the singular issue to be determined by the Commission is
whether the facsimile equipment purchased by the Petitioner is manufacturing
machinery within the meaning of Utah Code Ann.
§59-12-104(16).
The
Respondent argues that the facsimile equipment in question is not entitled to a
sales tax exemption because it claims the equipment is not involved in the
actual manufacture of the XXXXX. The
Respondent claims the manufacturing of the XXXXX begins once the XXXXX has been
produced. The Respondent goes on to
argue that because there is no physical contact between the facsimile equipment
and the finished XXXXX, it does not produce a tangible good for sale. The Respondent characterizes the equipment
as merely being a receiving device for information and not a step in the
manufacturing process.
The
Tax Commission finds the Respondent's characterization of the equipment in
question to be too narrow. Rule 85S
defines "machinery" as "electronic or mechanical machines to be
incorporated into a manufacturing or assembling process from the initial stage
where actual processing begins..." (Emphasis added.) Rule 85S also defines "equipment"
as "any independent device separate from any machinery but essential to an
integrated or continuous manufacturing or assembly process..." (Emphasis
added.)
While
it may be true that the actual printing process of a XXXXX occurs when the
offset printing plate transfers an image onto XXXXX, it is also true that the
manner in which that printing plate is produced is an essential element in the
manufacturing process. In the present
case, the manner in which the Petitioner produces that printing plate does not
detract from the essence or need for that printing plate. Here, because of the nature of the XXXXX
produced, the manner in which the Petitioner operates is a commercial
necessity.
Based
upon the foregoing, the Tax Commission finds that the facsimile equipment used
to expose XXXXX to produce a XXXXX which in turn is used to produce an offset
printing plate is equipment that is essential to the integrated or continuous
manufacturing of the XXXXX in question.
Therefore, all other requirements of Rule 85S having been met, the
purchase of such equipment was exempt from sales tax. The determination of the Auditing Division is reversed and the
Petitioner's request for a refund of taxes paid on such equipment is
granted. It is so ordered.
DATED
this 2 day of April, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
ABSENT
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner