Was a printing company's leased electrostatic duplicator exempt when it produced fewer than 4,000 impressions per hour?

Plain-English summary

The leased duplicator was taxable because it produced fewer than 4,000 impressions per hour. Virginia exempted high-speed electrostatic and other duplicators only when they met that capacity threshold and were used by a business primarily printing or photocopying products for sale or resale.

The printing company had supplied an exemption certificate, and the lessor initially did not collect tax. During the lease, however, the lessor determined that the machine was slower than the statutory threshold and began charging tax.

Virginia confirmed that the exemption had not been repealed or amended; the equipment simply did not qualify. Two other machines leased by the company did meet the speed requirement and remained exempt. The ruling did not grant a contract-based exception for the five-year lease.

Common questions

Q: Had Virginia changed the duplicator exemption?
A: No. The ruling says the exemption remained in effect without repeal or amendment.

Q: Why did tax begin during the lease?
A: The lessor determined that this machine did not meet the 4,000-impressions-per-hour requirement.

Citations and references

• Va. Code § 58.1-609.3(11).

Subject

Sales and use tax to the lease or rental of a high speed electrostatic duplicator.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-107

Original ruling text

June 29, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter in which you (the "Taxpayer") request a ruling regarding the application of the retail sales and use tax to the lease or rental of a high speed electrostatic duplicator. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a full-service print and visual communications company. The Taxpayer entered into a lease agreement for a high speed electrostatic duplicator and submitted a Form ST-11 certificate of exemption to the lessor in September 2008. The lessor was not charging the sales tax through most of 2009. From October 2009 forward, however, the lessor began charging the sales tax on the equipment being leased by the Taxpayer. When the Taxpayer inquired as to the reason for the sales tax charges, the lessor told the Taxpayer that the Commonwealth of Virginia had reclassified the duplicator from exempt to taxable.

The Taxpayer attempted to obtain written documentation from the lessor citing the authority that supports the imposition of the tax. When no information was provided, the Taxpayer requested a ruling from the Department regarding the taxability of the equipment. If such a lease is now taxable, the Taxpayer seeks an exception to such taxation because the Taxpayer entered into a five year contract and the machinery was; exempt prior to such change. If found that the equipment is exempt, the Taxpayer requests a refund of such taxes erroneously paid to the lessor.

RULING

In 1986, the Virginia General Assembly enacted several exemptions from the retail sales and use tax. One exemption is for high speed electrostatic duplicators and other duplicators having a printing capacity of 4,000 impressions or more per hour, when used by persons engaged primarily in the printing or photocopying of products for sale or resale. The exemption became effective July 1, 1986. Currently, this exemption, which has not been repealed or amended, can be found in Va. Code § 58.1-609.3 11.

A Department representative contacted the Taxpayer's lessor and found that the Taxpayer entered into a lease agreement with the lessor for a duplicator. During the lease, the lessor determined that the equipment at issue printed less than 4000 impressions per hour and did not meet the Virginia exemption provided in Va. Code § 58.1-609.3 11. As a result, the lessor began charging the sales tax. Because the equipment does not meet the requirements of the exemption, I find that the lessor is properly charging the tax on the equipment lease. I note that the Taxpayer does lease two other pieces of equipment that do meet the 4,000 or more impressions per hour requirement and the lessor is correctly exempting the charges on those leases from the sales tax. It is my understanding this information was verbally provided to the Taxpayer in July 2011.

I trust that this reply answers your ruling request. The Code of Virginia section cited is available on-line in the Tax Policy Library section of the Department's web site located at www.tax.virginia.gov. If you should have any questions regarding this ruling, you may contact * of the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4718421971.Q