Did a computerized advertising and page-makeup workstation used before typesetting qualify for Utah's manufacturing machinery exemption?

Plain-English summary

Utah Private Letter Ruling 90-008 addressed a printing business's purchase of a third computerized workstation used for advertising and page makeup before output went to a typesetting machine.

The Commission initially denied the manufacturing exemption on December 28, 1990 because it viewed actual processing as beginning where printing occurred.

After a later Commission decision involving similar equipment, the Commission revised its opinion.

The June 10, 1991 response concluded that the workstation qualified as manufacturing equipment and that its purchase was tax-exempt.

Initial denial

The original response applied Rule R865-19-85S, which covered machinery incorporated into a manufacturing or assembling process from the initial stage where actual processing began.

The Auditing Division initially treated actual processing as beginning at printing.

Because the workstation operated before printing, the December 1990 response found it nonqualifying.

Petition and production argument

The business challenged that result.

It argued that its production process began with computerized page makeup or could be viewed as separate prepress and printing production processes.

The appeal materials described the workstation as part of typesetting initiation and prepress production.

Revised opinion

The Commission later cited a recent decision concerning a similar piece of equipment.

Based on that decision, it concluded that the workstation qualified as manufacturing equipment.

The purchase was therefore entitled to the sales-or-use-tax exemption.

Holding

Under the revised opinion:

• The controlling response date is June 10, 1991.
• The computerized ad-makeup workstation qualified as manufacturing equipment.
• Its purchase was exempt from sales or use tax.
• The revised response replaced the December 28, 1990 denial.
• The taxpayer was invited to withdraw its petition and hearing request if it accepted the revised result.

What this means for you

Printing and publishing businesses

Computerized prepress or page-makeup equipment was treated as part of manufacturing under the revised facts and Commission decision.

Equipment purchasers

Check whether an official source contains a later revision before relying on the first response in the file.

Accountants and tax professionals

Analyze the equipment's place in the production process and verify the current exemption's requirements.

Common questions

Q: Did the workstation qualify for the exemption?

A: Yes, under the revised June 10, 1991 opinion.

Q: What had the earlier response concluded?

A: It denied the exemption because the equipment was used before the Commission's initially identified printing stage.

Q: Why did the Commission change its answer?

A: It cited a recent Commission decision concerning a similar piece of equipment.

Q: Which date should be used for the ruling's result?

A: June 10, 1991.

Key source language

• Revision: “This letter is for the purpose of revising our advisory opinion issued on December 28, 1990.”
• New result: the workstation “does qualify as manufacturing equipment.”
• Exemption: it “is entitled to tax exemption on its purchase.”
• Initial rationale: the prior response said the workstation was used before printing and therefore was not qualifying equipment.

Citations and references

• Utah Code Ann. § 59-12-104(16)
• Utah Sales Tax Rule R865-19-85S
• Appeal No. 91-0065, included in the official source

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 90-008
• Date note: the official source contains the December 28, 1990 response, appeal materials, and a controlling revised response dated June 10, 1991.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

[Responses June 10, 1991 and December 28, 1990]

June
10, 1991

XXXXX

Re: Advisory Opinion - XXXXX

Dear
XXXXX:

This
letter is for the purpose of revising our advisory opinion issued on December 28, 1990. You had requested that your purchase of a third XXXXX Station be exempt from sales or use tax under Code Section 59-12-104 (16) and Administrative Rule R865-19-85S.

Based
upon a recent Tax Commission decision concerning a similar piece of equipment, it is now our opinion that your XXXXX Station does qualify as manufacturing equipment and is entitled to tax exemption on its purchase.

If
you are now in agreement with this revised advisory opinion, please acknowledge your agreement and withdraw your Petition for Redetermination and request for a hearing by signing below and returning the signed copy of this letter.

For
the Commission

Joe
B. Pacheco

Commissioner

We
are in agreement with you revised advisory opinion dated June 10, 1991, and therefore, request that our Petition for Redetermination be withdrawn.

BEFORE
THE UTAH STATE TAX COMMISSION

XXXXX,

Petitioner

v.

Auditing
Division of the

Utah
State Tax Commission,

Respondent.

NOTICE

Appeal
No. 91-0065

Tax
Type: Sales

Please
be advised that the above captioned Petitioner has filed a request for agency action with the Utah State Tax Commission.

Further
hearing on the request will be held at a date and time to be set by the Appeals and Legal Affairs Section.

Respondent
must submit a written response within 3 days of the date of this notice, and send a copy to each party to the action. That response must contain the following:

1. The appeal number.

2. The name of the proceeding.

3. A statement of the relief that the Respondent
   seeks.

4. A statement of facts.

5. A statement summarizing the reasons that the
   relief requested should be granted.

Failure
to file a responsive pleading may be grounds for a default judgment being entered against the offending party.

DATED
this 8 day of march, 1991

XXXXX

Appeals
Technician

XXXXX

Appeals
Division

Utah
State Tax Commission

160
East Third South

Salt
Lake City, UT 84134

RE: Appeal of Advisory Opinion dated 12-28-90
and Petition for Hearing - XXXXX

1. Petitioner:

XXXXX

2. Tax Involved:

Sales
tax on production equipment with a purchase price of $$$$$. The sales tax amount is $$$$$.

3. This petition results from the 12-28-90
   advisory opinion from Mr. Joe B. Pacheco.

4
& 5 Relief sought:

Exemption
from sales tax under rule R865-19-85S.

6. The auditing division states that the
   production process begins for XXXXX where actual printing takes place. In fact, the production process for XXXXX may be viewed as:

a) a continuous production process beginning
with typesetting initiation (computerized page makeup) or;

b) two separate production processes, the first
of which includes prepress production such as typesetting initiation (computerized page makeup) and camera department functions such as platemaking. The second production process would include printing and may be extended to finishing, including folding, binding and packaging.

I
am including with this letter a copy of XXXXX's request of a declaratory judgement and Mr. Pacheco's letter.

Cordially,

XXXXX

Director
of finance

December
28, 1990

XXXXX

Director
of Finance

Re: Declaratory Judgment-XXXXX

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on whether the purchase of a third XXXXX Work Station qualifies for sales or use tax exemption under Sales Tax Rule R865-19-85S. You stated in a telephone conversation with XXXXX that the equipment consisted of a XXXXX computer and special software, and that you had to buy the hardware in order to get the software. You further stated that the output would go to a typesetting machine.

Although
your inquiry was framed as a request for a declaratory judgment, Tax Commission policy is to initially treat all such inquiries as requests for advisory opinions. As such, it was referred to the Tax Commission's Auditing Division for their analysis and recommendation. The division's recommendation is as follows:

1. Rule R865-19-85S provides an exemption for
   "new or expanding operations." This rule says "machinery means electronic or mechanical machines to be incorporated into a manufacturing or assembling process from the initial stage where actual processing begins. . .
   ."

2. Where actual processing begins is a key phrase.
   It means processing of the manufactured product, in XXXXX's case, where the actual printing takes place. The AdSpeed Work Station is used prior to the printing process, therefore, it is not qualifying equipment.

For
the Commission,

Joe
B. Pacheco

TO: XXXXX

FROM: XXXXX

DATE: October 19, 1990

SUBJECT: Request for Advisory Opinion

XXXXX
has requested a declaratory judgment/advisory opinion on the exempt status of a third XXXXX.

Please
respond according to the guidelines established by the Commission. Thank you.

TO: Utah State Tax Commission

DATE: August 10, 1990

SUBJECT: S85 Exemption

XXXXX
is currently installing a third XXXXX Workstation. This is a computerized ad makeup system. The Purchase price of this system is $$$$$. This equipment does not replace any other equipment at XXXXX. I believe this equipment is exempt from Utah State Sales Tax under rule A12-02-S85. In order to avoid the possible assessment of sales tax, penalty, and interest I would like a declaratory judgement to determine whether this piece of equipment qualifies for exemption.

Please
contact me if you have any questions or need additional information.

Cordially,

XXXXX

Director
of Finance