99-031

Response September 13, 1999

REQUEST LETTER

May 7,1999

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 to your state sales and use tax law with respect to the transaction and equipment described below.

The equipment in question, Xerox 5750 Color Copier machine, was originally purchased by the Lessor for subsequent lease or rental. The Lessee may enter into a "True Lease@ agreement with the Lessor, length of term still to be determined. Title to the property will remain with the lessor, the owner of the property for Federal Income Tax purposes.

The Xerox 5750 Color Copier machine will be installed on site in our retail store locations. The installation will be behind our camera/photo counter and not accessible to our customers. COMPANY =s employees will accept the customers' orders and process the orders of making the copies. Once orders are complete, sales will be registered at our camera/photo counter cash registers.

The machine has the following capabilities:

1) Color and Black & White heavy weight paper for posters, Reprint Covers and etc.

2) Reverse Image

3) Change the color Black to any color, color conversions (i.e. Orange to Green)

4) Delete information

5) Sizes available are from Postcard Size to 11 X 17 inches

6) Photo Retouching

The Lessee's primary business is operation of retail drug stores, but we believe that a Sales & Use Tax exemption may qualify based on the type and/or process use of the equipment under Manufacturing, Industrial Processing or Printing statues or other provisions existing in your state.

We respectively request your review of the facts presented and situations within this letter. We also request a ruling as to the taxability of supplies used in the producing copies such as toner, paper and etc., and the taxability of the final product sold to our customers. Also we would appreciate you furnish us authority for your response (statute, regulations, rulings, opinions and etc.). We certainly appreciate your assistance in this matter. If you have any questions or need any additional information, please call me at (847)914-5409. The response should be mailed to the undersigned at:

COMPANY

ADDRESS

Sincerely,

COMPANY

NAME

RESPONSE LETTER

September 13, 1999

NAME

COMPANY

ADDRESS

RE: Lease of a Xerox 5750 Color Copier

Dear NAME,

We have received your request for an advisory opinion concerning the lease of a Xerox 5750 Color Copier (AColor Copier@) by COMPANY . You have specifically asked if Utah law provides any sales and use tax exemption that could apply to this lease transaction. You have also asked whether supplies used to produce copies, such as toner and paper, are subject to taxation and whether the final product sold to the customer is taxable.

Lease of the Copier. Generally, 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 copier. 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.@ Photocopying and duplicating services are classified as SIC Code 7334 and include establishments primarily engaged in reproducing text, drawings, plans, maps, or other copy, by blueprinting, photocopying, mimeographing, or other methods of duplication. Moreover, this copier will be used in a retail establishment, classified under SIC Code 5912. Because the Color Copier 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 Color Copier 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.

Sales of copies to your customers are taxable. Sales of copies or other final products to your customers are taxable transactions, because they are retail sales of tangible personal property. Utah Code Ann. '59-12-103(1). Your purchases of paper and toner are exempt. Utah Code Ann. '59-12-104(25) exempts from taxation Aproperty purchased for resale in the state, in the regular course of business, either in its original form or as an ingredient or component part of a manufactured or compounded product.@ The paper and toner used by the Color Copier are incorporated into the taxable final copies sold to the customer. Accordingly, your store may purchase these items tax-free if they are incorporated into the final products. Should the store purchase these items tax-free, then consume them itself (e.g., for making copies for the store=s own use), the store would owe use tax on the purchase price of these supplies. Other items, such as supplies to clean the Color Copier, are considered to be consumed by the store and, thus, are subject to sales tax.

Please contact us if you have any other questions.

For the Commission,

R. Bruce Johnson

Commissioner

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