Does a digital color copier used to print business cards, signs, and banners instead of using a traditional offset printing press qualify for Utah's manufacturing equipment sales tax exemption?

Plain-English summary

A business that creates graphic designs and transfers them onto clothing, paper, and other materials leased a high-volume digital color copier and argued it should qualify for Utah's manufacturing machinery and equipment exemption (§ 59-12-104(14)). The business's theory: the copier does the same job as a traditional offset printing press — producing business cards, letterhead, brochures, signs, and calendars — so it should be treated as printing equipment even though it has no physical printing press on-site.

The Commission disagreed. The manufacturing exemption only reaches equipment used in a "manufacturing facility," and § 59-12-102(15) defines that by reference to SIC codes 2000-3999. About half this business's work was embroidering designs onto shirts (SIC 7389), and the other half involved transferring designs onto items like banners and business cards — a quarter of the total business through the color copier at issue. None of that fell within Major Group 27 (SIC 2711-2796), the printing classification, because printing in that group means the traditional common processes: letterpress, lithography, gravure, or screen printing. Printing from a digital file with a color copier isn't one of those processes, no matter how functionally similar the output looks. Instead, a business using photocopiers without printing presses falls under Major Group 73's service classifications (SIC 7332, later renumbered 7334).

The taxpayer had leaned on a prior Commission decision, Appeal No. 89-1793, where a high-volume photocopier qualified for the exemption — but only at business locations where traditional printing presses were predominant; a location without presses did not qualify in that same case. A second precedent, Appeal No. 90-0056, reached the same conclusion (SIC 7332, not a manufacturing facility) for a business with photocopiers but no presses. Since this taxpayer had no printing presses anywhere in the business, neither precedent helped it, and the copier lease doesn't qualify for the exemption.

Separate issue — maintenance "click charges." The business also asked whether it was overpaying tax on its per-copy service charges, which bundle equipment service/repair with consumables like toner that become part of the finished product. The Commission's answer: a per-print or per-copy charge under a maintenance agreement is taxable as a repair charge on tangible personal property under § 59-12-103(1), regardless of whether it's structured as a flat base fee or a per-copy rate. Even components that would otherwise be exempt (like toner, potentially exempt as a component-parts/resale item) become fully taxable once bundled into that maintenance charge — the only way to keep the exempt portion out of the tax base is for the vendor to state it as a separate line item on the invoice.

What this means for you

Print shops, copy centers, and sign/graphics businesses without traditional presses

Functional similarity to a printing press isn't the test — your SIC classification is. If your business doesn't use letterpress, lithography, gravure, or screen printing anywhere, digital printing/copying equipment likely won't qualify for the manufacturing exemption, even if it does the same job a press would.

Businesses with mixed locations or activities

If some locations or activities genuinely use traditional printing processes and others don't, the manufacturing classification can differ location-by-location or activity-by-activity — the exemption isn't automatically all-or-nothing across a multi-location business.

Anyone with a per-copy or per-print equipment maintenance agreement

Ask your vendor to separately state any nontaxable components (like toner or ink that could otherwise qualify for an exemption) on your invoice. If it's bundled into the maintenance/service charge, the whole thing is taxable as a repair charge.

Common questions

Q: Our digital printer replaces what an offset press used to do — doesn't that make it manufacturing equipment?
A: Not under Utah's test. The manufacturing exemption depends on your SIC classification (2000-3999), and printing from a digital file doesn't fall under the traditional printing processes (letterpress, lithography, gravure, screen printing) that define the printing SIC group.

Q: If part of our business uses a real printing press, does that help our other digital equipment qualify?
A: It can — prior Commission decisions found photocopiers exempt only at the specific locations where traditional printing presses were predominant, not company-wide. It's location/activity specific.

Q: We pay one bundled per-copy fee that includes toner and service — is any part of it exempt?
A: Not unless the vendor separately states the potentially exempt component (like toner) as its own line item. A bundled charge is fully taxable as equipment repair/maintenance.

Q: Can another business with a similar copier setup rely on this ruling?
A: No — it's an advisory opinion based on this business's specific mix of embroidery and digital printing work with no printing presses. A business with different equipment or activities would need its own SIC analysis.

Citations and references

Statutes and precedent:

• Utah Code Ann. § 59-12-104(14) (manufacturing machinery and equipment exemption)
• Utah Code Ann. § 59-12-102(15) (definition of "manufacturing facility" via SIC codes 2000-3999)
• Utah Code Ann. § 59-12-103(1) (tax on repair/maintenance charges for tangible personal property)
• Utah State Tax Commission Appeal No. 89-1793 (photocopier exemption limited to locations with predominant traditional printing presses)
• Utah State Tax Commission Appeal No. 90-0056 (photocopier-only location classified SIC 7332, not manufacturing)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/02-020.htm

Original ruling text

02/020

Response Letter

10/11/02

REQUEST
LETTER

NAME

ADDRESS

PHONE

FAX

Request for "Private Letter Ruling"

Under Utah law (Utah Code Ann: �59-12-104 (14)) a provision is made for the sales and use tax exemption on machinery and equipment used in the manufacturing process in a manufacturing facility if the machinery and equipment has an economic life of three or more years and is used to manufacture an item sold as tangible personal property. We are currently leasing a COMPANY Docucolor 12- Color copier (production life in excess of 3 years) which sole purpose is in producing of such tangible personal property for our customers which are mainly commercial printers and users of commercial printing.

The clear distinction between the type of use that this machine is required to handle and applications found in a copy shop is that it is used to replace the work done on offset printing presses and to do direct digital printing of Business cards, Letterhead, Brochures, Calendars, Signs, etc.

When offset printing is too slow or expensive our printer is a better solution for our customers and resellers. Although the equipment in questions is capable of doing photocopying work, it is rarely if ever used in that capacity. As such, this equipment is acting as a substitute for offset printing equipment.

Since distinct and separate economic activities are performed at this single physical location, this activity should be treated as separate establishment (Administrative Rule R865-19-85S) Even though the SIC code assigned to our company is 5999, the activity that this machine is responsible to handle is found under SIC code 2751.

Similar to Appeal No. 89-1793
the equipment in questions is not used as a photocopying service and
should be exempt under the manufacturing exemption.

Also in questions is the cost per copy (click charge) from COMPANY. The charge currently includes:

1. The service and repair of equipment as needed.

2. The consumable supplies like fuser oil and toner, which become parts of the end product.

They currently do not separate or distinguish the different components of that charge and we have been making payments of sales tax on the entire amount. What part of their charge is taxable? Is there a way to avoid the double taxation that comes from paying sales tax on the component parts of the click charge that would normally be non-taxable?

We respectfully request a private letter ruling to address the tax concerns referenced herein.

Truly,

NAME

RESPONSE
LETTER

October 11, 2002

NAME

ADDRESS

RE: Private Letter Ruling � Exemption from Sales Tax for Manufacturing Equipment

Dear NAME,

You have requested a ruling concerning the lease of a COMPANY color copier by your business. Specifically, you ask if the lease of the color copier qualifies for the manufacturing equipment and machinery exemption (�manufacturing exemption�) from sales tax. A second issue concerns the taxation of certain costs charged to you by COMPANY for each copy made on the machine.

Manufacturing Equipment Exemption. Utah Code Ann. �59-12-104(14) exempts from
taxation certain purchases and leases of machinery and equipment used in a
manufacturing facility. If your
business does not qualify as a �manufacturing facility� for purposes of the
exemption, the other requirements need not be discussed. Whether your business is considered a
manufacturing facility (defined in Utah Code Ann. �59-12-102(15) as an
establishment described in SIC codes 2000 to 3999) depends upon the precise nature
of your business.

Your business creates graphic designs and transfers these designs onto clothing, paper, plastics, metal, and other materials that a client might require. Approximately 50% of your business involves the embroidery of your designs onto clothing, primarily shirts. The other 50% involves transferring your designs onto other items, such as banners, signs, posters, fliers, catalogs, business cards, etc. About one-half of the latter category (25% of your total business) is performed with a COMPANY Docucolor 12 Color Copier (�Color Copier�), the equipment about which you have inquired. Although you do not have any traditional printing presses at your business, you assert that the Color Copier is a substitute for a traditional offset printing press and, as such, should be classified as being used in a printing industry, which could qualify it for the manufacturing exemption.

To support your assertion, you refer to Utah State Tax
Commission Appeal No. 89-1793, in which the Commission determined that a
high volume photocopier that could perform functions similar to a traditional
printing press qualified for the exemption.
In that appeal, however, a business with three locations only received
the exemption for photocopiers that were placed in those locations where
traditional printing processes were predominant. In the location without traditional printing presses, that
location was determined not to be a manufacturing facility and did not receive
the exemption. The Commission also
reached a similar conclusion in Utah State Tax Commission Appeal No. 90-0056. In that case, the Commission found that the
SIC classification for those locations with photocopying machines, but without
printing presses, was 7332 and, as a result, was not considered a manufacturing
facility.

From the information available, your business does not employ any traditional printing presses at its facility. At least half of the work at the facility (embroidering of designs on shirts) could be considered a SIC classification of 7389. The Commission has previously found that the SIC classification for a business using photocopiers, but not printing presses, was 7332 (now listed in the SIC Manual as 7334). Much of the work you described in a recent telephone conversation also appears to fall within other SIC classifications in Major Group 73 (SIC Codes 7311 � 7389). However, for a printing business to be classified in Major Group 27 (SIC Codes 2711 � 2796), that printing should be one of the more common processes, such as letterpress, lithography, gravure, or screen. To print from a digital file with a Color Copier is not the type of printing described in Major Group 27. As there is no indication that any portion of your business is an establishment described under SIC Codes 2000 � 3999, it is not considered a manufacturing facility and the lease of the Color Copier cannot qualify for the manufacturing exemption.

We also note that the portion of Utah Administrative Rule
R865-19S-85 you cite concerning an activity being treated as a separate
establishment has changed.
Nevertheless, as none of the activities at your business appear
to be described in SIC Codes 2000 � 3999, we need not determine if any activity
qualifies as a separate establishment.

Maintenance and Repair Charges. Your second question concerns the cost per
copy charges from Xerox. We have
recently addressed this issue in another ruling for a business that services
photocopiers and charges a �per print� charge.
We stated that a �per print� charge under a maintenance agreement is
considered a charge for the repair of tangible personal property and,
accordingly, is taxable under Utah Code Ann. �59-12-103(1). This is true whether the maintenance
agreement is based on a base service charge or includes a per print or copy
charge. In any case, such a charge is
repair and maintenance of tangible personal property and, thus, taxable. If
charges for toner or ink, which may be tax-exempt under the resale for
component parts exemption, are imbedded in a maintenance or repair charge, the
entire charge is taxable. The charge
for the nontaxable item must be stated separately; otherwise, it too is
taxable.

Should you have further questions, please contact us.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

02-020