99-020
Response September 13, 1999
REQUEST LETTER
March 1, 1999
COMPANY hereinafter referred to as Lessee is
investigating the Sales and Use tax treatment of a lease transaction involving
tangible personal property that will have a taxable situs in your state.
We hereby request a ruling to clarify the application
of your state sales and use tax law with respect to the transaction and
equipment use described below.
Transaction Background:
The equipment in question, Image Magic Picture Maker
(a digital imaging system) was originally purchased by the Lessor for
subsequent lease or rental. The Lessee entered into a 'True Lease"
agreement with the Lessor. Title to the property will remain with the Lessor,
the owner of the property for federal income tax purposes. The equipment lease
is for 60 months under a master lease
agreement. Under the lease provisions, the Lessee will remain responsible
during the lease period for insurance, maintenance, risk of loss and pay either
directly or reimbursable to Lessor all taxes related to the property except
taxes based on net income of Lessor. At the end of the 60 months, the Lessee
has the option (1) return the equipment to Lessor, (2) purchase the equipment
for its fair market value or (3) renew the lease for an additional term at the
fair market rental value.
Equipment, Features and Use:
The Image Magic Picture Maker (the Unit) will be
installed on site in our retail store locations. The Unit is meant to be
customer friendly. A Awalk up" customer may require store assistance in
the operation of the machine. After the customer finishes making all their
prints, they would take them to the
Camera/Photo Department counter to purchase.
Computer hardware and software drive the Digital
Imaging Picture Maker, the customers can customize by grouping features
together offering which we believe to be a
value-added change. The machine produces or makes a digitized image
print from the original photo without a negative Transfers images from old,
worn photos to an Enhancement Station for photo restoration via
write-to-diskette feature, the original print is returned immediately to the
consumer.
Picture Maker features reduce ARed-eye"; create Border designs; bigger pictures
from wallet size to 8x12; Zoom and Crop; capture digitally on Disk all from
existing pictures (no negatives needed) Customers make reprints, enlargements,
photo gifts and high-resolution digital files and images. Touch Screen Monitor
requires minimal intervention at point of sale. Automatically converts odd-size
originals into standard print size in seconds Add photographic quality creative
border designs. Incorporates transfer capability
(T-shirts, Mugs, etc.). Displays images in three
suggested frame sales screens- Networks to a Aprinterless" Enhancement Station to enhance
productivity by sharing a printer. Maximizes full job overlap that allows
simultaneous image manipulation and printing. Provided option prints two
different 5x7 images at onetime. Again, the customer can group features
together in selectable modes, allowing
a choice or the array of services.
The Image Maker CopyPrint Station System includes
Digital Monitor, Digital Processor with built-in CD-ROM and floppy disk drive,
Digital Print Scanner and Digital Printer. System enhanced copyright
protection, which detects Special Paper to help avoid copyright infringements.
The Lessee's primary business is operation of retail
drug stores, but we believe that a sales/use tax exemption may quality based on
the type and/or process use of the equipment under Manufacturing, Industrial
Processing or Printing statutes or other provisions existing in your state laws.
We respectively request your review of the facts
presented and situation described above. Also we would appreciate you
furnishing us authority for your response (statute, regulation, rulings,
opinions, etc.). We certainly appreciate your assistance in this matter. If you
have any questions or need any additional information please call me at #####.
Response should be mailed to the undersigned at:
COMPANY
ADDRESS
Respectfully submitted,
NAME
RESPONSE
LETTER
September 13, 1999
NAME
ADDRESS
RE: Lease
of an Image Magic Picture Maker
Dear NAME,
We have received your request for an advisory opinion
concerning the lease of an Image Magic Picture Maker (APicture Maker equipment@) by COMPANY . You have
specifically asked if Utah law provides any sales and use tax exemption that
could apply to this lease transaction.
Lease of the Picture Maker Equipment. Sales tax is due on the lease of tangible
personal property. Utah Code Ann. '59-12-103(1)(k).
Accordingly, sales tax is due on the lease of the Picture Maker
equipment. Utah law provides a sales and
use tax exemption for the purchase or lease of machinery and equipment used in
the manufacturing process in a manufacturing facility in Utah if the machinery
and equipment has an economic life of three or more years and is used to
manufacture an item sold as tangible personal property. Utah Code Ann. '59-12-104(14).
All these requirements must be met before the purchase or lease
qualifies for the sales and use tax exemption.
For purposes of Subsection 59-12-104(14), Utah Code
Ann. '59-12-102(12) defines Amanufacturing facility@ as Aan establishment described in SIC Codes 2000 to 3999
of the 1987 Standard Industrial Classification Manual of the federal Executive
Office of the President, Office of Management and Budget.@
Photofinishing Laboratories are classified as SIC Code 7384 and include
establishments primarily engaged in developing film and in making photographic
prints and enlargements for the trade or for the general public. These establishments also include those that
develop and print film, process film, and develop and retouch photographs. Moreover, the Picture Maker equipment will
be used in a retail establishment, classified under SIC Code 5912. Because the Picture Maker equipment is not
used in an establishment described in SIC codes 2000 to 3999, it is not used in
an establishment that qualifies as a manufacturing facility. As a result, the Picture Maker equipment
does not qualify for the manufacturing machinery and equipment sales and use
tax exemption. Accordingly, the lease
payments are subject to Utah sales and use tax.
Please contact us if you have any other questions.
For the Commission,
R. Bruce Johnson
Commissioner
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