Response
July 30, 1992
July
30, 1992
XXXXX
Re:
Advisory Opinion - Manufacturing Exemption
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling that
the purchase of plotting and scanning equipment and enlargement or reduction
equipment may qualify for exemption from sales or use tax under the provisions
of Code Section 59-12-104(15). These purchases were taxed in an audit which was
paid on XXXXX.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. The division's recommendations are as follows:
1.
In order to qualify for exemption from sales tax on machinery and equipment
purchases, the activity must be one described in the Standard Industrial
Classification Manual under SIC code 2000 to 3999. The activity must be to manufacture a product for sale as
tangible personal property. A separate activity of manufacturing tangible
personal property within a business may qualify as a "separate
establishment" and may be eligible for exemption.
2. XXXXX's laser plotting and color
electrostatic plotting services are professional services much the same as the
service of a draftsman or an architect. The use of special equipment does not
change the intended output which is providing a service on a customized basis.
3. XXXXX's activity to sell document
enlargements or reductions is the same as a photocopy service. It is not like
an offset printing service.
4.
The document scanning service is classified under SIC Code 7374, Computer
Processing and Data Preparation and Processing Service.
5.
The fact that the output is derived through digital methods rather than
photographic methods does not change the nature of the activity. None of the
activities performed by XXXXX are considered manufacturing activities.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these facts
this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of Rights are
attached.
For
the Commission
Joe
B. Pacheco
Commissioner
Utah
State Tax Commission
Auditing
Division
Sales
& Use Tax
XXXXX
We
at XXXXX made the decision to expand our scope of business to include a Service
Bureau division. Since that time we have engaged in the business of Laser
Plotting, Color Electrostatic Plotting, Large Document Enlargement and
Reduction and Scanning of Engineering & Architectural drawings.
In
each case equipment has been purchased and employees have been hired to take a
raw material and create an end product that we have added value to. Many of our
services were formerly not available in Utah or any of the surrounding states.
At this time we are attracting business from many Western states as well as
some in the Eastern United States.
Because
of this Service Bureau division in our company XXXXX is now requesting an
Advisory Opinion to establish a "Separate Establishment in a Manufacturing
Activity" to separate our new business from our traditional one.
In
an effort to help you visualize the process and the end product, we are
composing a description of each service and a sample of the finished product.
Our
Sales Brochure is also enclosed.
Large
Document Laser Plotting
In
the Architectural and Engineering world, a large majority of the design is done
using a Computer Aided Drafting ( C.A.D.) system. After the design is complete,
they need to plot the drawing on a hard copy. Plotting can be a very slow
process unless you invest in a high speed Laser Plotter at a cost of about
$$$$$.XXXXX invested in such a plotter and now offers the fast, high quality
plots to our customers. The customer brings us their designs on a disc. We
install the disc in our C.A.D. system and plot the drawings to their
specifications. We take a blank sheet of 100% rag vellum and plot an image on
the surface, creating a finished drawing.
See
example "A"
Color
Electrostatic Plotting
The
Color Plotting process is similar to the Laser Plotting process. The customer
still presents us with a disc and we plot the drawing to their specifications.
A color plotter is used to create a drawing with up to 30 colors possible. The
size limitation for our color plotting is 36 inches wide x 50 inches long.
See
example "B"
Large
Document Scanning
XXXXX
has the ability to convert a drawing created by hand into a file that is usable
on a Computer Aided Drafting (C.A.D.) system. This is valuable to customers who
don't have the time to redraw drawings in a C.A.D. format. Our customers bring
us hardcopies or blueprints which we Scan and Vectorize. The finished product
is a file with the images from the hardcopy in a digital form on a floppy disc.
Many
of our customers have 100's or 1,000's of old drawings in their files.
Converting them into a digital format by any other means would be difficult if
not impossible.
See
example "C"
The
processes we perform have not been widely recognized or understood until
recently. We feel that when the last SIC manuals were published that they had
not considered classifying the processes we use. An appropriate SIC number
would allow us to recover monies paid as a result of a XXXXX audit, as well as
making it more feasible to continue to invest in new equipment and expand our
business.
As
you can see our process's are not unlike the offset press process. Our output
is derived through digital methods instead of the photographic methods they
use.
If
the descriptions of our processes, along with our samples, do not give you a
clear picture of our finished products, we would invite you to visit our
facility for a first hand inspection.
I
have also enclosed a copy of the XXXXX Audit, pertaining to the equipment used
in Service Bureau Department.
Thank
you for meeting with me and considering our situation.
XXXXX