BEFORE THE UTAH STATE TAX COMMISSION
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
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.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis