Do audio- and video-tape duplication subsidiaries of a broadcasting company qualify as 'manufacturers' for Utah's sales tax exemption on new manufacturing equipment?

Plain-English summary

This record bundles together three documents concerning the same dispute: (1) the taxpayer's original request letter, (2) the Utah State Tax Commission's December 3, 1990 Advisory Opinion resolving it, and (3) the taxpayer's subsequent Petition for Redetermination (filed January 24, 1991) formally challenging that opinion.

A Utah broadcasting corporation had two subsidiaries that mass-duplicated audio cassettes (over 3 million a year) and video tapes (over 1.5 million a year) — loading blank tape into shells, duplicating the program content onto it, then labeling and packaging for distribution to wholesalers and distributors, who resold to retail outlets. The company asked whether this activity qualified as "manufacturing" for Utah's sales tax exemption on equipment purchased for new or expanding manufacturing operations (then § 59-12-104(16), Rule R865-19-85S).

The Commission's answer: no. Its Auditing Division classified the subsidiaries' activity under Standard Industrial Classification (SIC) Code 7814 — "production" of motion pictures and tape for exhibition — which falls outside the qualifying manufacturing range of SIC Codes 2000-3999. As a result, the subsidiaries did not qualify for the exemption and were not entitled to a refund of sales tax already paid on equipment purchased to expand their duplication operations.

The taxpayer pushed back hard in its Petition for Redetermination, arguing the Commission had misclassified the business: it argued SIC Code 3652 (manufacturing phonograph records and pre-recorded magnetic tapes) was the correct fit, not 7814 — pointing out that 7814 expressly excludes "reproducing" (as opposed to original production), which is exactly what the subsidiaries did (mass-duplicating existing recorded content, not creating original recordings). The taxpayer also drew an analogy to the printing industry (SIC codes 2731/2732), arguing that duplicating audio/video content onto tape is functionally the same as printing books onto paper. The petition requested a refund of sales tax paid on the qualifying equipment, with interest, and asked for a formal hearing if the request was denied on the papers.

This record does not include a final resolution of the petition — only the original adverse opinion and the taxpayer's formal appeal of it.

What this means for you

Media duplication, reproduction, and manufacturing-adjacent businesses

This dispute illustrates how much can turn on a single SIC code classification. If your business reproduces or duplicates existing content or products (audio/video tapes, CDs, printed matter) rather than creating original content, don't assume the "manufacturing" exemption automatically applies — check the SIC code the Commission would actually assign your specific activity, since a "production" classification (which can look similar to manufacturing on paper) may be treated very differently for tax purposes.

Businesses considering a Petition for Redetermination

This record is a useful template for how a taxpayer disputes a Commission opinion: identify the specific classification error, propose the correct SIC code with supporting reasoning, and draw analogies to comparable, already-accepted industries — while formally preserving the right to a hearing if the paper request is denied.

Researchers and tax professionals

Because this record doesn't show the outcome, don't treat the December 1990 opinion as necessarily the final word on this taxpayer's classification — the petition may have been granted, denied, or settled, and none of that appears here. Also note the SIC-code-based manufacturing exemption framework here is decades old; Utah's current manufacturing exemption rules may classify similar activities differently.

Common questions

Q: Does duplicating audio or video tapes count as "manufacturing" for Utah's sales tax exemption?
A: In this 1990 opinion, no — the Commission classified it as a SIC 7814 "production" service, not manufacturing (SIC 2000-3999), so the exemption didn't apply. The taxpayer disputed this classification, but the outcome of that dispute isn't in this record.

Q: What did the taxpayer argue instead?
A: That its activity should be classified under SIC 3652 (manufacturing phonograph records and pre-recorded tape), since SIC 7814 expressly excludes "reproducing" — which is what the taxpayer's subsidiaries actually did, as opposed to original production.

Q: Was the taxpayer's appeal successful?
A: Unknown from this record — it contains the adverse opinion and the taxpayer's Petition for Redetermination challenging it, but no final order resolving the petition.

Q: Does this ruling apply to my business?
A: Not automatically — even setting aside that the outcome of the appeal is unknown, this is a fact-specific advisory opinion binding only on the Commission for the taxpayer and facts described. Consult a Utah tax professional about your own SIC classification and current exemption rules.

Citations and references

Statutes and rules (1990-era numbering — since renumbered/amended):

• Utah Code Ann. § 59-12-104(16) (1990) (manufacturing exemption for new/expanding operations equipment)
• Utah Admin. Rule R865-19-85S (1990) (establishment and manufacturing facility definitions)

Classification standard referenced:

• Standard Industrial Classification (SIC) Manual (1972 ed.) — SIC 7814 (motion picture/tape production) vs. SIC 3652 (phonograph records/pre-recorded tape manufacturing) vs. SIC 2731/2732 (book/periodical printing, cited by analogy)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/90-014.htm

Original ruling text

90-014

January
24, 1991

XXXXX

Utah
State Tax Commission

Auditing
Division

160
East Third South

Salt
Lake City, Utah 84134-2100

Re:
XXXXX Petition for Redetermination

Dear
XXXXX:

Enclosed
please find our Petition for Redetermination regarding the manufacturers'
exemption from sales tax on purchase of equipment used in new or expanding
manufacturing operations.

The
Petition is in response to an Advisory Opinion dated December 3, 1990 signed by
Joe B. Pacheco which was received in our office on December 27, 1990 (see
attached copy of envelope showing December 26, 1990 postmark).

Please
call me at XXXXX if you have any questions. We thank you for your help and
consideration.

Sincerely,

XXXXX

Treasurer

[BEFORE THE UTAH STATE TAX COMMISSION]

In
the Matter of:

XXXXX

Petitioner,

XXXXX

PETITION
FOR REDETERMINATION

The
Petitioner herewith requests an agency action before the Utah State Tax
Commission, as provided in Utah Code Ann. �63-46b-3(3). (Attach additional
pages if necessary.)

1. If this petition results from a letter or
   notice from the Commission, include the date of the letter or notice and the
   originating division or officer.

This
opinion results from an Advisor Opinion dated December 3, 1990, signed by
Commissioner Joe B. Pacheco.

2. Indicate the agency's file number or other
   reference number.

None

3. Indicate the particular tax involved, the
   period of alleged liability, if appropriate, and the amount of tax or the issue
   in dispute.

The
tax involves sales tax. The amount and periods have not been determined. but will
comply with the rates in effect at the time of purchase within the statute of
limitations.

4. Include a statement of the facts and reasons
   forming the basis for relief or action sought from the agency.

See
Attached

5. Include a summary of arguments and
   authorities relied upon.

See
Attached

6. Indicate legal authority, jurisdiction,
   and/or rule under which agency action is requested.

UCA-59-12-104(16);
Rule R865-19-85S

7. Include a statement of the relief or action
   sought from the agency.

See
Attached.

8. Do you request an oral hearing Yes / x/
   No / /

If
not, the Commission will make a determination based on the information
presented herewith.

9. Indicate the names and addresses of all
   persons to whom a copy of the Petition for Redetermination is being sent.

The
Petition was delivered to Utah State Tax Commission -- Attn: XXXXX

Petitioner's
Signature

Telephone
No. XXXXX

MAILING
CERTIFICATE

I
certify that I hand delivered this Petition for Redetermination to the Utah State
Tax Commission, Auditing Division, 160 East Third South, Salt Lake City, Utah,
84134-2100, this 24th day of January 1991.

Petitioner

Petition
for Redetermination

January

24. 1991

Statement
of Facts/Summary of Arguments

XXXXX
(XXXXX) is a Utah corporation engaged primarily in radio and television
broadcasting. Two of XXXXX's divisions, XXXXX (XXXXX) and XXXXX (XXXXX),
qualify for the sales tax exemption provided in UCA 59-12-104(16). The XXXXX
and XXXXX manufacturing processes deal with video and audio tapes. XXXXX and
XXXXX annually produce over 3,000,000 audio cassettes and 1,500,000 video tapes
respectively.

In
both divisions, the manufacturing process deals basically with three phases:

1-
Assembly: Blank tape is loaded into VHS or audio shells.

2-
Duplication: Program material is then reproduced onto the audio or video tape.

3-
Distribution: The video and audio tapes are then labelled and packaged for
distribution to resellers.

Various
pieces of machinery and equipment are used in this manufacturing process.
During recent years, equipment was purchased to expand the video and audio tape
manufacturing operations. Sales tax was paid on the purchase of this equipment.

Some
examples will illustrate the type of work and clientele that XXXXX and XXXXX
deal with:

A
popular video in Utah has been "XXXXX", a musical dealing with
problems faced by LDS families and youth. XXXXX, the distributor, contracted
with XXXXX to reproduce approximately 60,000 copies of this video tape. XXXXX then
distributes the video to bookstores and video outlets throughout the country.

XXXXX,
a large national publisher, contracts with XXXXX for the duplication of
"books on tape." XXXXX will reproduce say 5,000 audio cassettes of a
particular book and then sell the cassettes to XXXXX who then distributes the
tapes to its national network of retail outlets. In summary, the XXXXX/XXXXX
manufacturing operations deal mainly with the duplication of video and audio
tapes which are sold to wholesalers/distributors who then in turn distribute
the tapes to various retail outlets throughout the country.

Section
59-12-104(16) provides for a sales tax exemption for purchases or leases of
machinery and equipment by a manufacturer for use in new or expanding
operations (excluding normal operating replacements) in any manufacturing
facility in Utah. A manufacturing facility is defined as an establishment
described in the Standard Industry Classification (SIC) Codes 2000 to 3999 of
the 1972 SIC Manual.

Rule
R865-19-85S(A)(5) states that an "Establishment means an economic unit of
operations that is generally at a single physical location in Utah where
qualifying manufacturing activities are performed. Where distinct and separate
economic activities are performed at a single physical location, each activity
should be treated as a separate establishment." Pursuant to this rule, XXXXX may have various SIC
codes for various establishments. The operations of XXXXX and XXXXX must be treated
as separate establishments for purposes of the sales tax exemption.

The
XXXXX/XXXXX tape manufacturing operations are directly related to the SIC
manufacturing code series. Quoting from page 57 of the 1972 SIC manual's
definition of manufacturing:

"Establishments
engaged in assembling component parts of manufactured products are also
considered manufacturing if the new product is neither a structure nor other
fixed improvement."

XXXXX
and XXXXX assemble the tape and cassette shell component parts as part of its
tape manufacturing process.

SIC
Code number 3652 applies specifically to our operation. That category includes
establishments primarily engaged in manufacturing phonograph records and
pre-recorded magnetic tapes. At the establishments in question, the majority of
our work deals with prerecorded audio and video tapes and fits precisely within
this category. Moreover, the tapes XXXXX and XXXXX manufacture are sold to
wholesalers/distributors rather than to final retail consumers. This factor
(sold to wholesalers/distributors) is not mentioned in this classification, but
it appears frequently in other manufacturing classifications and appears to be
a significant factor in determining whether the "manufacturing"
classification is appropriate.

Our
business is also similar to the printing industries identified as major group

27. In particular, we are analogous with and closely related to the provisions
    set forth regarding codes 2731 and 2732. In essence, XXXXX is producing books
    and music on audio tapes while printers produce books and music on paper. XXXXX
    is producing stories and ideas on video tape, while printers produce stories
    and ideas on paper. The operations at the XXXXX/XXXXX establishments involve
    manufacturing and therefore qualify for exemption under the provisions of Rule
    R865-19-85S.

The
Tax Commission's letter of December 3, 1990, indicates that "the activity
performed by XXXXX and XXXXX is a "production" service, and they do
not meet the requirement that their activity would be classified as
manufacturing with a SIC code from 2000 to 3999." This letter also
incorrectly assigns the SIC code 7814 to XXXXX and XXXXX.

The
7814 SIC Code description states: "Establishments primarily engaged in the
production of theatrical and nontheatrical motion pictures and tape, including
commercials, for television exhibition." Establishments engaged in both
production and distribution are included here. This classification does not
apply to the XXXXX and XXXXX activities described above. In addition, one of
the activities included under the 7814 classification is "Video tape
production (but not reproducing)." Is it precisely the
"reproducing" (which is specifically excluded from this SIC code
section) that XXXXX and XXXXX are involved with. The majority of our audio and
video tapes are mass produced copywritten materials which are sold to
wholesalers/distributors who then distribute the tapes to retail outlets for
resale to consumers. We strongly
believe that the expansion of our business operations is exactly what the
legislature had in mind in adopting this business development related
exemption.

Statement
of Relief Sought

XXXXX
respectfully requests a ruling that it is entitled to seek a refund of sales
tax paid together with applicable interest relating to purchases of equipment
qualified for sales tax exemption. Sales tax was paid to vendors of the
equipment. If this relief is not granted based on the information included in
this request, a formal oral hearing is requested. Subsequent to the filing of
this petition, we will prepare a detailed list of equipment qualifying for the
sales tax exemption.

XXXXX

Re:
Advisory Opinion - Manufacturer's Exemption from Sales Tax

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on whether
your wholly owned subsidiaries, XXXXX and XXXXX, qualify for exempt purchases
under �59-12-104(16). It is your opinion that producing video tapes is a
manufacturing activity.

The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request ant make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendation. The Division's recommendation is as follows:

1.
The activity performed by XXXXX and XXXXX is a "production" service,
but they do not meet the requirement that their activity would be classified as
manufacturing with a SIC code from 2000 to 3999. In the Standard Industrial
Code Manual of 1972, they would be classified with SIC Code 7814, which is not
a manufacturers code number. A copy of the manual page is attached.

2.
XXXXX and XXXXX are not entitled to apply for a refund of sales or use tax even
though they may have expanded their "production" facilities.

Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously,
if there are deviations from these facts, this opinion may be negated.

If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights is attached.

For
the Commission,

Joe
B. Pacheco

Commissioner

Utah
State Tax Commission

Heber
Wells Building

160
East 300 South

Salt
Lake City, Utah 84134

Attn:
XXXXX

Re:
Sales Tax Exemption for Purchases/Leases of Machinery and Equipment by a Manufacturer
for Use in New or Expanding Operations (Rule R865-19-85S)

Dear
XXXXX:

The
purpose of this letter is to request clarification regarding the application of
Rule 865-19-85S to the operations of XXXXX and XXXXX, both divisions of XXXXX
(#XXXXX).

XXXXX
(XXXXX) is a Utah corporation engaged primarily in radio and television
broadcasting. Two of XXXXX's divisions, XXXXX and XXXXX, perform manufacturing
services as part of their operations which appear to qualify for the sales tax
exemption for equipment purchases and leases provided for under the sales tax
rule cited above.

The
XXXXX and XXXXX manufacturing processes deal with video and audio tape
duplication respectively. In both companies, the manufacturing process deals
basically with three phases:

1)
Loading of blank tape into VHS video or audio shells

2)
Duplication of program material onto tape

3)
Labelling and packaging of materials for distribution

Various
pieces of machinery and equipment are used in the manufacturing processes
described above.

Rule
R865-19-85S provides for a sales tax exemption for purchases or leases of
machinery and equipment by a manufacturer for use in new or expanding
operations (excluding normal operating replacements) in any manufacturing
facility in Utah. Normal operating replacements would include replacement
machinery and equipment which increases plant production or capacity. A
manufacturing facility is defined as an establishment described in the SIC
Codes 2000 to 3999 of the Standard Industrial Classification Manual.

XXXXX's
SIC code is 4830, for radio and television broadcasting. Rule R865-19-85S
indicates in paragraph 5 that an "Establishment means an economic unit of
operations that is generally at a single physical location in Utah where
qualifying manufacturing activities are performed. Where distinct and separate economic activities are performed at
a single physical location, each activity should be treated as a separate
establishment." This would seem to indicate that even though XXXXX's SIC
code does not fall within the 2000-3999 range, that the operations of XXXXX and
XXXXX should be treated as a separate establishment for purposes of the sales
tax exemption.

Based
on the materials discussed above, we would appreciate your responding to the following
questions:

1)
Are XXXXX and XXXXX eligible for the sales tax exemption provided for by Rule
R865-19-85S?

2)
What is the effective date(s) for the this exemption?

3)
If the answer to 1) above is yes, would XXXXX and XXXXX be entitled to file for
a refund of sales taxes paid on equipment purchased for use in expanding
operations?

We
would appreciate your response to these questions plus any additional
information which would help us to comply with the sales and use tax
regulations in this area. Please call me at XXXXX if you have any questions or
should you need additional information.

We
thank you for your help and consideration.

Sincerely,

XXXXX

Treasurer