Did plotting, scanning, and large-document enlargement or reduction qualify as manufacturing so the service bureau's equipment purchases were exempt?

Plain-English summary

Utah Private Letter Ruling 92-019 addressed a service bureau that bought equipment for laser plotting, color plotting, large-document scanning, enlargement, and reduction.

The business argued that it created finished products through digital processes and should qualify as a separate manufacturing establishment.

The Commission concluded that none of the activities were manufacturing and denied the requested equipment exemption.

Manufacturing-exemption standard

The response said machinery and equipment qualified only when used in an activity described in Standard Industrial Classification codes 2000 through 3999.

The activity had to manufacture a product for sale as tangible personal property.

A manufacturing activity within a broader business could potentially qualify as a separate establishment, but the listed activities did not meet the manufacturing standard.

Laser and color plotting

The service bureau accepted customer designs on computer discs and plotted customized hard-copy drawings.

The Commission classified laser plotting and color electrostatic plotting as professional services similar to drafting or architecture.

Using specialized equipment did not change the intended customized service output.

Enlargement and reduction

Selling large-document enlargements or reductions was treated like a photocopy service.

The Commission distinguished it from offset printing.

Document scanning

The company scanned and vectorized customer drawings and delivered digital files on floppy discs.

The Commission classified that activity under SIC 7374, Computer Processing and Data Preparation and Processing Service.

Digital methods

The company argued that its processes were similar to offset printing but used digital rather than photographic methods.

The Commission said the production method did not change the activity's nature.

None of the described activities was manufacturing.

Holding

Under the stated facts:

• A qualifying activity had to fall within SIC 2000 through 3999.
• It had to manufacture tangible personal property for sale.
• Plotting was a customized professional service.
• Enlargement and reduction resembled photocopying, not offset printing.
• Scanning fell under SIC 7374 data processing.
• Digital production did not change the classifications.
• The equipment purchases did not qualify for the manufacturing exemption.

What this means for you

Plotting and reprographics businesses

Expensive production equipment and a physical output do not by themselves establish manufacturing status under this historical ruling.

Scanning and digitization services

The Commission focused on the activity's service classification rather than the conversion of paper drawings into digital files.

Accountants and tax professionals

Analyze the actual establishment and output under current statutes and classifications; do not rely on a 1992 SIC conclusion without updating it.

Common questions

Q: Did laser plotting qualify as manufacturing?

A: No.

Q: Did color plotting qualify?

A: No.

Q: Was enlargement or reduction treated like printing?

A: It was treated like photocopying, not offset printing.

Q: How was document scanning classified?

A: Under SIC 7374 as computer processing and data preparation and processing service.

Q: Did using digital methods change the result?

A: No.

Key source language

• Plotting: “professional services much the same as the service of a draftsman or an architect.”
• Reproduction: “the same as a photocopy service. It is not like an offset printing service.”
• Scanning: “classified under SIC Code 7374.”
• Conclusion: “None of the activities performed by XXXXX are considered manufacturing activities.”

Citations and references

• Utah Code Ann. § 59-12-104(15)
• Standard Industrial Classification codes 2000 through 3999
• Standard Industrial Classification code 7374

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 92-019
• Scope note: the response stated that deviations from the presented facts could negate the opinion.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

Response
July 10, 1992

July
10, 1992

XXXXX

Re:
Advisory Opinion - Manufacturing Exemption

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling that the purchase of plotting and scanning equipment and enlargement or reduction equipment may qualify for exemption from sales or use tax under the provisions of Code Section 59-12-104(15). These purchases were taxed in an audit which was paid on November 27, 1991.

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

1.
In order to qualify for exemption from sales tax on machinery and equipment purchases, the activity must be one described in the Standard Industrial Classification Manual under SIC code 2000 to 3999. The activity must be to manufacture a product for sale as tangible personal property. A separate activity of manufacturing tangible personal property within a business may qualify as a "separate establishment" and may be eligible for exemption.

2. XXXXX's laser plotting and color
   electrostatic plotting services are professional services much the same as the service of a draftsman or an architect. The use of special equipment does not change the intended output which is providing a service on a customized basis.

3. XXXXX's activity to sell document
   enlargements or reductions is the same as a photocopy service. It is not like an offset printing service.

4.
The document scanning service is classified under SIC Code 7374, Computer Processing and Data Preparation and Processing Service.

5.
The fact that the output is derived through digital methods rather than photographic methods does not change the nature of the activity. None of the activities performed by XXXXX are considered manufacturing activities.

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.

For
the Commission

Joe
B. Pacheco

Commissioner

Auditing
Division

Sales
& Use Tax

XXXXX

We
at XXXXX made the decision to expand our scope of business to include a Service Bureau division. Since that time we have engaged in the business of Laser Plotting, Color Electrostatic Plotting, Large Document Enlargement and Reduction and Scanning of Engineering & Architectural drawings.

In
each case equipment has been purchased and employees have been hired to take a raw material and create an end product that we have added value to. Many of our services were formerly not available in Utah or any of the surrounding states. At this time we are attracting business from many Western states as well as some in the Eastern United States.

Because
of this Service Bureau division in our company XXXXX is now requesting an Advisory Opinion to establish a "Separate Establishment in a Manufacturing Activity" to separate our new business from our traditional one.

In
an effort to help you visualize the process and the end product, we are composing a description of each service and a sample of the finished product.

Our
Sales Brochure is also enclosed.

Large
Document Laser Plotting

In
the Architectural and Engineering world, a large majority of the design is done using a Computer Aided Drafting ( C.A.D.) system. After the design is complete, they need to plot the drawing on a hard copy. Plotting can be a very slow process unless you invest in a high speed Laser Plotter at a cost of about
$$$$$.XXXXX invested in such a plotter and now offers the fast, high quality plots to our customers. The customer brings us their designs on a disc. We install the disc in our C.A.D. system and plot the drawings to their specifications. We take a blank sheet of 100% rag vellum and plot an image on the surface, creating a finished drawing.

See
example "A"

Color
Electrostatic Plotting

The
Color Plotting process is similar to the Laser Plotting process. The customer still presents us with a disc and we plot the drawing to their specifications. A color plotter is used to create a drawing with up to 30 colors possible. The size limitation for our color plotting is 36 inches wide x 50 inches long.

See
example "B"

Large
Document Scanning

XXXXX
has the ability to convert a drawing created by hand into a file that is usable on a Computer Aided Drafting (C.A.D.) system. This is valuable to customers who don't have the time to redraw drawings in a C.A.D. format. Our customers bring us hardcopies or blueprints which we Scan and Vectorize. The finished product is a file with the images from the hardcopy in a digital form on a floppy disc.

Many
of our customers have 100's or 1,000's of old drawings in their files. Converting them into a digital format by any other means would be difficult if not impossible.

See
example "C"

The
processes we perform have not been widely recognized or understood until recently. We feel that when the last SIC manuals were published that they had not considered classifying the processes we use. An appropriate SIC number would allow us to recover monies paid as a result of a 1991 audit, as well as making it more feasible to continue to invest in new equipment and expand our business.

As
you can see our process's are not unlike the offset press process. Our output is derived through digital methods instead of the photographic methods they use.

If
the descriptions of our processes, along with our samples, do not give you a clear picture of our finished products, we would invite you to visit our facility for a first hand inspection.

I
have also enclosed a copy of the XXXXX Audit, pertaining to the equipment used in Service Bureau Department.

Thank
you for meeting with me and considering our situation.

XXXXX