Sales Tax State Activity Update - October 2004

Copy Machines Qualify for Industrial Machinery Exemption in Tennessee

The Tennessee Department of Revenue recently ruled that copy machines, component parts, fluids or chemicals used in the operation of copy machines at reprographic centers were exempt industrial machinery.

The taxpayer offers commercial reprographic services to customers at its facilities or the customer’s facilities. Copying, binding, stapling and numbering services of original customer provided documents are performed at the facilities for customers. The taxpayer provides personnel, supplies and equipment during the copy centers’ normal business hours. Only taxpayer personnel operate and maintain the copiers. Customers are charged a base amount for a certain number of copies and an additional amount for copies in excess of the base number of copies.

Under Tennessee law, industrial machinery is exempt when used primarily in the fabrication or processing of tangible personal property for resale. Industrial machinery includes machinery used in pre-press and press operations of printing, including component parts, fluids or chemicals necessary for the mechanical or chemical actions or operations of such machinery. Tennessee regulation provides sales of advertising circulars, books, forms, tickets and other printed items are subject to sales tax. Printing, binding of paper, books forms and letters is a fabrication thereof subject to sales tax regardless of whether the customer furnishes the paper or materials used in fabrication work.

In this case, taxpayer’s business activities of making copies and providing related binding, stapling and numbering services are the fabrication of tangible personal property for resale. Industrial machinery used in pre-press and press operations of printing, including component parts, fluids or chemicals necessary for the mechanical or chemical actions or operations of such machinery are exempt. Therefore, copy machines, replacement parts, fluids or chemicals used primarily in copying services at the reprographic center are exempt from sales tax.

The full text may be accessed at: http://www.state.tn.us/revenue/rulings/sales/04-06.pdf

(Tennessee Department of Revenue Letter Ruling Number 04-06, 01/31/04)

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