91-0257 - Sales






Petitioner, : FINDINGS OF FACT,






: Account No. XXXXX

Respondent. :



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Alan Hennebold, Presiding Officer, heard the matter for and on behalf of the Commission. XXXXX, Assistant General Counsel for XXXXX represented the Petitioner. XXXXX, Assistant Utah Attorney General, represented the Respondent.

Prior to the hearing, the parties submitted a Stipulation of Facts. Based upon the stipulated facts and evidence presented at the hearing, the Tax Commission hereby makes its:


1. Petitioner is primarily engaged in radio and television broadcasting, but also does business in related fields through various operating divisions. On XXXXX, the Commission issued an advisory opinion holding that purchases or leases of manufacturing machinery and equipment by two of Petitioner's operating divisions, XXXXX and XXXXX, are not exempt from sales and use tax pursuant to U.C.A.59-12-104(15) [formerly59-12-104(16)].

Petitioner then sought review of the Commission's advisory opinion by filing its Petition For Redetermination. The parties have subsequently agreed that Petitioner's Petition for Redetermination may be treated by the Commission as a claim for refund of sales tax already paid by Petitioner.

2. XXXXX assembles, duplicates and distributes video tapes from its own facility. It is a separate cost center with separate financial statements. In XXXXX, video tape manufacturing accounted for XXXXX of XXXXX net sales, with the remainder derived from production of commercials, training tapes, and the like.

3. XXXXX, another of XXXXX operating divisions, is nearly identical to XXXXX except that it manufactures audio tapes instead of video tapes. The parties have stipulated that purchases or leases of manufacturing equipment by XXXXX exempt from sales and use tax pursuant to U.C.A.59-12-104(15). In a separate Order, the Commission has approved the parties' stipulation with respect to XXXXX.

4. The magnetic tape used by XXXXX and XXXXX in their respective operations is essentially the same material.


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 and use tax. [U.C.A.59-12-104(15).]

"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. [U.C.A.59-12-104(15).]

"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. [Utah State Tax Commission Administrative RuleR865-19S-85(14).]


The Commission has accepted the parties' stipulation that purchases or leases of equipment used by XXXXX in the manufacture of audio tapes are exempt from sales and use tax pursuant to U.C.A.59-12-104(15). The issue now before the Commission is whether XXXXX is also entitled to the same exemption. Respondent concedes that XXXXX meets all criteria for exemption except the requirement that it function within activity codes 2000-3999 as set forth in the XXXXX SIC manual. Therefore, the determination of the proper SIC activity code for XXXXX is determinative of this appeal.

Petitioner argues that video tape manufacture is included in activity code 3652, which is titled "Phonograph Records and Pre-recorded Magnetic Tape" and includes "establishments primarily engaged in manufacturing phonograph records and prerecorded magnetic tape". However, the Commission considers it unlikely that the drafters of the XXXXX SIC manual intended to include video tape reproduction in the same activity code as activities related to audio media such as phonograph records. The Commission's interpretation of the scope of activity code 3652 is supported by the fact that the XXXXX SIC manual specifically limits activity code 3652 to audio media.

For its part, Respondent contends that video tape manufacture is included in the XXXXX SIC manual's activity code 7814, "Motion Picture and Tape Production For Television":

Establishments primarily engaged in the production of theatrical and nontheatrical motion pictures and tape, including commercials, for television exhibition. Establishments engaged in both production and distribution are included here. . . .

However, the notes following activity code 7814 specifically exclude video tape reproduction. The Commission therefore concludes that video tape reproduction is not encompassed by the XXXXX manual's activity code 7814.

By its own terms, the XXXXX SIC manual is intended to cover the entire field of economic activities. If XXXXX video tape reproduction activities are not included in the manual's activity code 3652 as urged by Petitioner, or in activity code 7814 as urged by Respondent, it must be included in another of the manual's activity codes. The Commission finds that video tape reproduction is included in the manual's activity code 7819--Services Allied to Motion Picture Production:

Establishments primarily engaged in performing services independent of motion picture production but allied thereto, such as motion picture film processing, editing and titling; casting bureaus; wardrobe and studio property rental; television tape services (editing, transfers, etc.); and stock footage film libraries.

The foregoing list of activities allied to motion picture production is not exclusive and is broad enough to encompass video tape reproduction. The XXXXX SIC Manual specifically places "motion picture and video tape reproduction" in activity code 7819.

The Commission's obligation in this matter is to determine whether XXXXX activities fall with the SIC activity codes designated by the legislature as qualifying for exemption from sales tax. The Commission has no authority to extend the exemption beyond the scope of the legislative determination. After reviewing the various SIC activity codes and comments, the Commission concludes that XXXXX reproduction of video tapes is included in activity 7819 of the XXXXX SIC manual. Because XXXXX activities fall outside those SIC classifications which are exempt from sales and use tax under U.C.A.59-12-104(15), the Commission concludes Petitioner is liable for payment of sales and use tax with respect to machinery and equipment purchased or leased by XXXXX for the reproduction of video tapes. The Commission therefore reaffirms its previous declaratory order as it pertains to XXXXX and denies XXXXX request for refund of sales tax already paid. It is so ordered.

DATED this 2nd day of September, 1991.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner