96-038

Response February 27, 1996

Request

February 21, 1996

Dear Commissioners:

Regarding: Exemption from sales or use tax for manufacturing machinery or equipment used in new or expanding operations.

This past year as we have discussed this exemption with representatives of the tax commission, we have become aware of a changing philosophy regarding qualification. It is our understanding that in the past qualifying machinery or equipment had to come into contact with or perform some direct modification to the raw materials that would eventually become the product being sold in an arms-length transaction. It is also our understanding that past policy excluded from the exemption machinery or equipment that produced tangible personal property that was incidental to the production of the product.

We have been advised that this position has been expanded and that current interpretation extends the exemption to certain pieces of machinery or equipment that do not come into direct contact with the product or the raw materials but that are a part of the continuous manufacturing process. We have been cautioned that each situation will be evaluated individually.

XXXXX, a printing establishment, is one of our recent clients. During our audit, we became aware of a piece of machinery called a vacuum frame. The vacuum frame makes exact film duplicates. One of the uses of these duplicates is to group several reproductions of the same image on one large sheet.

The vacuum frame does not come into contact with the final printed material. Nevertheless, it is a part of a continuous process which involves transferring an original image to film and then to printing plates and then to a printed piece. It is our position that under your present philosophy the vacuum frame would qualify for the exemption from sales or use tax for machinery or equipment used in new or expanding operations.

We would appreciate your responding to our evaluation. If you need additional information in order to determine the exemption status of the vacuum frame, please let us know.

Thank you for your attention to this question.

Sincerely,

XXXXX

Research Consultant

February 27, 1996

XXXXX

RE: Advisory Opinion Manufacturing Exemption

Dear XXXXX,

This letter is to confirm our telephone conversation this morning about your request for an advisory opinion regarding XXXXX. In view of the fact that the purchase transaction has already occurred, we suggest that your client submit a claim for refund to our Customer Service Division. The Customer Service Division will make a determination on the claim. If your client is dissatisfied with the action on the refund claim, that action may be challenged through the appeal process.

You may see this process as a change in how we handle after-the-fact requests for advisory opinions. In fact, we believe that advisory opinions are most appropriately used as a tax planning tool before a taxpayer enters the transaction. If the question presented is whether the taxpayer is due a refund for an overpayment of tax, that question is more appropriately addressed through a refund claim and, if necessary, an appeal.

The Tax Commission looks forward to serving you and your clients in the future.

For the Commission,

Alice Shearer

Commissioner