Who owed tax on color separations, filmwork, and printing plates retained by a printer for customer jobs?

Subject

Purchase of Color Separations, Filmwork, and Printing Plates

Plain-English summary

The tax result depended on whether the printer actually sold the separations, filmwork, and plates or consumed them in performing print jobs. A taxable sale required a pre-printing agreement explicitly transferring title while the items were in Florida, a separate customer charge, and a price at least equal to cost. The printer then collected sales tax and could purchase the items for resale with a proper certificate.

Without that sale structure, the printer was the consumer and owed tax when purchasing the retained items. Replacement plates whose cost was built into linerboard pricing were overhead, not separately sold property, so the printer owed tax and applicable surtax on their cost. The same sale-versus-use distinction applied if the printer fabricated plates itself.

What this means for you

Separate invoicing alone was not enough when the printer retained possession. The agreement needed an explicit transfer of title; otherwise the prepress items remained taxable inputs used by the printer.

Common questions

Could title pass even though the printer kept the plates? Yes, but only through an explicit agreement identifying that transfer.

Did use within the same corporate division create a sale? No.

Were replacement plates resold merely because their cost entered product pricing? No. Florida treated them as overhead consumed by the printer.

Citations and references

• Fla. Stat. §§ 212.02(4), 212.02(16)(a), 212.05(1)(a)1.a., 212.05(1)(b), 672.401(1), and 213.22
• Fla. Admin. Code rr. 12A-1.028(5), 12A-1.043, and 12A-1.056

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-012

Original ruling text

Jan 25, 1994

RE: TAA 94A-012
Sales Tax; Purchase of Color Separations, Filmwork, and
Printing Plates
ss. 212.02(4), (16)(a), 212.05(1)(a)1.a.,(b), 672.401(1),
F.S.
Rules 12A-1.028(5), 12A-1.043, 12A-1.056, F.A.C.

Dear :

Thank you for your letter dated July 30, 1993, which seeks
the issuance of a Technical Assistance Advisement. XXX
(hereinafter "Firm") wishes to know the proper tax treatment on
its purchases of separations, filmwork, and printing plates
which may or may not be resold to customers.

As disclosed during our telephone conversation on Tuesday,
December 21, 1993, your firm services two types of customers:
container plants (corporations) that are separate legal entities
and container plants that are part of your firm's Corrugated
Container Division. You also stated that your firm's PrePrint
Division is not a separate division; rather, it is part of the
Corrugated Container Division (the title "PrePrint Division" is
a misnomer). The Corrugated Container Division has container
plants located throughout the United States. Postings are made
to the general ledger whenever "PrePrint" supplies "Corrugated"
with boxes and so forth. Your request provides in part:

"... Our facility manufactures preprinted linerboard, which
we sell to various container plants around the country. All
these sales are tax-exempt, since our preprinted linerboard is
incorporated as a component part of other tangible property that
is produced for sale by manufacturing by the container plants.
Most, or all, of these container plants that we will sell to are
[Firm] plants, and we have sales tax resale (exemption)
certificates on file from them.

"The areas that I would like an advisement on concern our

new and replacement plates. Our printing press does the fancier
printing on rolls of paper which are manufactured into
corrugated boxes, such as: displays for stores, point of
purchase boxes for electronics, toys, household goods, etc.; and
produce boxes. For each new order that we run, there are color
separations, filmwork, and printing plates that we purchase from
the outside. We normally bill our customer for them at a price
greater than our cost, but we keep the filmwork and printing
plates at our location in order to print the jobs...." (Emphasis
Supplied)

"... After the initial set of plates is worn out, we
purchase replacement plates from an outside source. When
we develop the cost to charge our customer for the
preprinted linerboard, we have a component for replacement
plates. So the cost of the replacement plates is passed
along to our customer in the price of the preprinted
liner...."

Your request presents the following questions:

"1.) Whether the color separation, filmwork and printing
plates are tax exempt (as is our main product), when we sell
them to our customer?
"2.) Whether the color separations, filmwork and printing
plates are tax exempt if we do not recharge our customer for
them?
"3.) Whether the replacement printing plates are tax exempt
since they are contained in the selling price to our customer?
"4.) If we begin to manufacture our own printing plates
instead of purchasing them from an outside source, does that
change any of the previous three advisements?"

DETERMINATION

During our telephone conversation on Tuesday, August 31,
1993, you stated that your firm separately bills its customers
for the separations, filmwork, and new printing plates. It was
further disclosed that your firm does not separately bill its
customers for replacement plates. The following documents were
faxed for my review: sales invoice number XXX which billed an

out-of-state customer $14,559.76 for artwork, film separations,
proof, and printing plates; invoice number XXX from Blanks Color
Imaging which billed [Firm] $5,561.16 for prepress and $7,044.69
for 16 plates; sales invoice number XXX which billed an out-ofstate customer $30,031.67 for preprinted liner; and a job cost
estimate sheet dated July 27, 1993, which identifies your firm's
cost for replacement plates.

The issue in question was addressed in Hillsborough
Printing & Lithographing Company v. Florida Department of
Revenue et al., Case No. 74-1350 (2 Cir. Ct.), aff'd 332 So.2d
79 (1 DCA 1976). Hillsborough Printing purchased separations,
mechanicals, artwork and typesetting to be used in filling
custom printing orders. None of the items became a component of
the finished product or were consumed in the printing process.
The customer's invoice showed only a lump sum or percent price
for the finished printed material. The firm retained the items
at its place of business for potential later use. However, if a
customer requested the items they were provided at no additional
cost. Judge James E. Joanos stated that the items were not sold
by Hillsborough Printing to its customers. Nor was the firm
under any legal duty to deliver the separations and so forth to
the customers under the terms of the purchase orders. The fact
that the items would be given to a customer at no additional
cost could not be construed as a "sale". See Stapling Machines
v. Kirk, 298 So.2d 565 (1 DCA 1974).

Judge Joanos' opinion, dated April 7, 1975, further
provides:

"... 7. The taxation involved in this proceeding does not
constitute pyramiding of the tax in violation of F.S.
212.081(3)(b) or F.S. 212.12(11). The fact that plaintiff's
customer is taxed on the total billing does not in and of itself
make the situation an impermissible double taxation. The items
in question constitute overhead. See Ryder Truck Rental, Inc.
v. Bryant, 170 So.2d 822, 825 (Fla. Sup. Ct. 1964)."

The issue was also addressed in Ruralist Press, Inc. et al.
v. Florida Department of Banking and Finance, 429 So.2d 1270 (1
DCA 1983). Ruralist Press printed telephone directories for XXX

in the state of XXX. The state of Florida collected use tax on
the books delivered here based upon their "cost price".
Lithographic plates were used in XXX to complete the printing
order and remained in XXX upon completion of the order.
Ruralist argued that including the cost of the plates in the
"cost price" of the books violated section 212.06(7), F.S.,
which exempts from tax property upon which a like tax has been
paid, since sales tax was paid to the state of XXX. Judge
Mills' opinion provides in part:

"... Florida is not taxing the use of the plates. No
argument
is made that cost price is not the appropriate measure of value.
Rule 12A-1.027(3) is a reasonable interpretation of the
statutes."

Therefore, it was determined by the Court that including
the cost of the lithographic plates, upon which sales tax was
assessed by the state of XXX, did not violate s. 212.06(7), F.S.

Rule 12A-1.028(5), F.A.C., governs the issue at hand and
provides:

"A printer who purchases, fabricates or produces expendable
items of tangible personal property such as engravings,
cuts, mats, art work, typography, photographs, perforating
tape, printing plates, etc., for use in producing
newspapers, magazines, or periodicals for sale or in
processing a customer's engraving or printing order but
which items themselves do not become an ingredient or
component part of the finished product, is construed to be
the consumer of such items and shall pay the tax on his
cost thereof. When the printer purchases such expendable
items, the entire purchase price is subject to the tax.
When he produces or fabricates such expendable items
himself, his fabrication labor is not taxable but he shall
pay the tax on the cost of the materials and supplies that
he uses in the production or fabrication thereof. However,
if by terms of the sales agreement, the printer agrees to
sell such expendable items to his customer for an amount
equal to or greater than his cost of the items and the

printer separately bills his customer therefor and collects
the tax thereon, in addition to the charge that he makes to
the customer for the printing order, the printer is not the
consumer of such items and is not liable for tax on his
cost of the items sold." (Emphasis Supplied)

The term "sale" is defined in s. 212.02(16)(a), F.S., as
"Any transfer of title or possession, or both, exchange, barter,
license, lease, or rental, conditional or otherwise, in any
manner or by any means whatsoever of tangible personal property
for a consideration." (Emphasis Supplied)

Response to Question #1:

It is the Department's position that if a printer by the
terms of the sales agreement entered into prior to printing,
agrees to sell items such as separations, filmwork, plates, and
so forth to his customers for an amount equal to or greater than
his cost and separately bills his customers in addition to the
charge he makes to the customer for the printing order, he is
deemed to be selling tangible personal property. As presented
in s. 212.02(16)(a), F.S., there must be a transfer of title or
possession in order for a sale to occur. In all instances, your
firm retains possession of the separations, filmwork, and
plates; therefore, in order for your firm to "sell" the
separations, filmwork, and plates title to these items must past
to your customer(s) while the items are within this state.
Section 75, Effect of Agreement, 45 Fla Jur 2d provides:

"While title to goods ordinarily does not pass under the
Uniform Commercial Code before the goods are identified to the
contract, the parties are otherwise free to determine by
explicit agreement when title passes. Although the code
requirement of an `explicit' agreement to ascertain the
intention of the parties prevents reading into sales contracts,
or into the actions of the parties, agreements based on obscure
language or inconclusive actions. Only language drafted with
some degree of deliberation would constitute the required
explicit agreement...." See Official Comment 3 to UCC s. 2-501.

The above "explicit agreement" requirement is further

contained in section 672.401(1), F.S., which provides:

"Title to goods cannot pass under a contract for sale prior
to their identification to the contract (s. 672.501), and unless
otherwise explicitly agreed the buyer acquires by their
identification a special property as limited by this code....
[T]itle to goods passes from the seller to the buyer in any
manner and on any conditions explicitly agreed on by the
parties."

As disclosed during our telephone conversation on Monday,
December 20, 1993, your firm's customers do not purchase the
separations, filmwork, and plates for resale but rather allow
your firm to repeatedly use such items on subsequent print jobs
(for that customer only). Therefore, should sales agreements
entered into by your firm and its customer(s) evidence that
title to the separations, filmwork, and plates transfers while
the items are within this state, a taxable Florida sale occurs.
Please be advised that no sales agreements were submitted to
this writer for review.

In accordance with section 212.05(1)(a)1.a., F.S., your
firm is required to collect and remit sales tax based upon the
total taxable sales price of the separations, filmwork, and
plates. In those instances where your firm purchases
separations, filmwork, and plates for resale, it must extend a
properly executed certificate of resale to the selling vendor(s)
in order to purchase such items tax free.

Response to Question #2:

Should your firm not sell the separations, filmwork,
plates, and so forth as specified in Rule 12A-1.028(5), F.A.C.,
then it is deemed the ultimate consumer of such items. Your
firm must pay tax on the separations, filmwork, plates, and so
forth when such items are purchased by your firm for its own
use, rather than for resale purposes. For instance, a sale does
not occur (i.e., there is no transfer of title or possession of
the property for consideration) when the same division purchases
the separations and prepares boxes for use by that same
division.

Response to Question #3:

As provided in Hillsborough Printing & Lithographing
Company v. Florida Department of Revenue et al., supra, items
used by the printer which do not become a component part of the
finished product and which are provided to the customer at no
additional cost constitute overhead; not a sale. Therefore, in
accordance with Rule 12A-1.028(5), F.A.C., and s. 212.05(1)(b),
F.S., your firm is required to pay tax at the rate of 6 percent
plus any applicable discretionary sales surtax on the cost price
of the replacement printing plates consumed by it.

Response to Question #4:

For those transactions in which your firm manufactures its
own printing plates rather than purchasing them from outside
sources, Rules 12A-1.028(5) and 12A-1.043(1), F.A.C., are
controlling. For instance, should your firm "sell" the plates
as specified in Rule 12A-1.028(5), F.A.C., it is not liable for
tax on its cost of the items sold. This holds true whether your
firm purchases the plates or fabricates them in-house. However,
your firm must present a properly executed resale certificate to
its vendors in order to exempt its purchases from tax. As
presented earlier in this response, in this instance your firm
is required to collect and remit sales tax from its customer(s)
on the total taxable sales price charged for the plates.

Should your firm use the plates in completing a customer's
order rather than selling such plates (i.e., there is no
transfer of title or possession for a consideration as required
by s. 212.02(16)(a), F.S.), then in accordance with section
212.05(1)(b), F.S., and Rule 12A-1.028(5), F.A.C., your firm
owes use tax on the cost price of the fabricated items. The
term "cost price" is defined in s. 212.02(4), F.S., as "... the
actual cost of articles of tangible personal property without
any deductions therefrom on account of the cost of materials
used, labor or service costs, transportation charges, or any
expenses whatsoever."

As stated during our telephone conversation on Monday,

December 20, 1993, Rules 12A-1.028(5) and 12A-1.043(1)(a),
F.A.C., provide that fabrication labor is not taxable when
expendable items are fabricated and used in manufacturing other
tangible personal property. Rule 12A-1.043(1)(b), F.A.C.,
describes the elements of cost price as follows:

"(b) Elements of cost price will include those costs that
are directly or indirectly attributable to the
manufacturing, producing, compounding, processing, or
fabricating an article of tangible personal property for
one's own use and which are properly chargeable to a
capital account or to the cost of the product under
generally accepted cost accounting standards. Major
elements to be included in the manufactured cost price of
tangible personal property for one's own use include direct
materials, direct labor, and indirect manufacturing costs.
"1. Direct material costs include all materials and related
freight costs that are physically observable as being
identified to the finished tangible personal property, that
are consumed in producing the property, or that become a
component or ingredient of the finished property. See
paragraphs (c) and (d), below, for calculating the tax on
the cost of the finished product when sales tax has or has
not been paid on direct materials.
"2. Direct labor includes labor costs that are traceable to
the production of the finished property.
"3. Indirect manufacturing costs refer to all costs other
than direct materials and direct labor that are associated
with the manufacturing process and include both variable
and fixed factory overhead. Other terms describing this
category include factory overhead,'factory burden,' and
`manufacturing overhead.' Such indirect manufacturing costs
include, but are not limited to the following,
notwithstanding the fact that sales tax has been paid:

"a. Indirect labor and all direct and indirect labor
overhead including overtime premium, vacation and
holiday pay, sick leave pay, shift differential,
payroll taxes, payments to a supplemental
unemployment benefit plan, and employee fringe
benefits and supervisory personnel;

"b. Compensation of officers, to the extent it is
related to production and not administrative
functions;
"c. Indirect materials and supplies;
"d. Rework labor, scrap, and spoilage;
"e. Tools and equipment, to the extent not
capitalized;
"f. Depreciation;
"g. Amortization;
"h. Depletion;
"i. Insurance;
"j. Rent of equipment, facilities, or land;
"k. Interest expense attributable to production
costs;
"l. Costs of administrative, service, or support
departments allocable to production;
"m. General and administrative expenses incurred in
production activities (for example, security
services, factory accounting, and data
processing);
"n. Material handling and warehousing of direct
materials and goods in process;
"o. Repairs and maintenance related to production
facilities;
"p. Taxes, other than taxes based on or measured by
income;
"q. Freight costs of direct materials (freight-in);
"r. Expenses incurred in implementing quality
control;
"s. Utilities, including electricity, water,
telephone, etc.;
"t. Waste disposal; and/or
"u. Any other indirect costs allocable to production,
however described or classified."

The tax is due at time the article of tangible personal
property is manufactured, produced, compounded, processed, or
fabricated for use or consumption, and such tax shall be
remitted to the Department of Revenue in accordance with Rule
12A-1.056, F.A.C.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Betsy Turner
Technical Assistant

BT/
Control #10261