Could a photocopy and visual-communications business rent a printer tax-free under Virginia's industrial manufacturing exemption?

Plain-English summary

The leased printer did not qualify for either Virginia exemption the company claimed. The print and visual-communications business first argued that the machine was a high-speed duplicator. An audit found it could not produce the required 4,000 or more impressions per hour.

The company then argued that it was an industrial manufacturer and could use the manufacturing exemption certificate for machinery used directly in production. Virginia distinguished traditional industrial printing from retail reproduction and photocopying services. Its longstanding policy treated quick-copy and photocopy operations as nonindustrial service activities.

Because the business was not an industrial manufacturer and the machine missed the high-speed threshold, the company could not use Form ST-11 and the lease remained taxable.

Common questions

Q: Are all printing and copying businesses treated as industrial manufacturers?
A: No. The ruling distinguished traditional printers from retail photocopy operations.

Q: What was the high-speed duplicator threshold?
A: At least 4,000 impressions per hour under the statute applied in the ruling.

Q: Could the company use the manufacturing exemption certificate?
A: No. Its operations did not qualify as industrial manufacturing.

Citations and references

• Va. Code § 58.1-609.3(2), (11).
• Virginia Public Document 12-107 (July 25, 2012).

Subject

Photocopying businesses do not qualify for the exemption in Va. Code § 58.1­-609.3 2.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-149

Original ruling text

September 19, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter dated July 3, 2012, in which you (the "Taxpayer") request further clarification of the Department's prior ruling, Public Document (P.D.) 12-107 (7/25/12), regarding the application of the retail sales and use tax to the lease or rental of a high speed electrostatic duplicator.

FACTS

The Taxpayer operates a full-service print and visual communications company. The Taxpayer entered into a lease agreement for a printer which was not initially subjected to the retail sales tax. The lessor, however, began charging the sales tax on the equipment being leased because the printer was not a high speed duplicator capable of printing 4,000 or more impressions per hour as required by Va. Code § 58.1-609.3 11. The Department upheld the application of the tax by the lessor as provided in the Department's response to the Taxpayer in P.D. 12-107.

The Taxpayer responded to the Department contending that even if the lease of the printer was not exempt of the tax, the Taxpayer was a manufacturer and was entitled to use the manufacturing exemption certificate form ST-11 to rent the printer as machinery used directly in manufacturing products for sale or resale. The Taxpayer requested that a representative from the Department review the Taxpayer's operations to verify that it was entitled the exemption.

RULING

Virginia Code § 58.1-609.3 2 provides an exemption from the retail sales and use tax for industrial manufacturers. Traditional printers historically have been classified as industrial manufacturers and can purchase photocopiers that are used instead of a printing press exempt of the tax under the industrial manufacturing exemption. However, the reproduction of originals for sale as part of a retail business is classified as a nonindustrial service activity. The Department's consistent policy has been that photocopy operations are not industrial manufacturers. Thus, "quick copy centers" and other photocopying businesses do not qualify for the exemption in Va. Code § 58.1­-609.3 2.

In 1986, the General Assembly enacted the exemption currently found in Va. Code § 58.1-609.3 11 for "[h]igh speed electronic duplicators or any other duplicators which have a printing capacity of 4,000 impressions or more per hour purchased or leased by persons engaged primarily in the printing or photocopying of products for sale or resale." The exemption was enacted to allow photocopy businesses to purchase high speed copy machines exempt of the tax when used in a nonindustrial manner.

I understand that the Department's auditor visited the Taxpayer and reviewed its operations and determined that the printer at issue did not print the required 4,000 or more impressions per hour and, therefore, did not qualify for the exemption in Va. Code § 58.1-609.3 11. Additionally, because the Taxpayer is not a manufacturer in the industrial sense, the Taxpayer does not qualify for the manufacturing exemption in Va. Code § 58.1-609.3 2 and is not entitled to the exemptions listed in the certificate of exemption form ST-11.

The Code of Virginia sections and public document cited are available on-line in the Tax Policy Library section of the Department's website located at www.tax.virginia.gov . If you have any questions regarding this matter, please contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5140203576. Q