DRS: PS 90(4), Newspapers

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

This Policy Statement has been obsoleted by PS 95(4)

PS 90(4)

Newspapers


This policy statement is a restatement of the Department's existing policy of the Sales and Use Tax treatment of the newspaper industry on the issue of which phases of its business operations qualify for manufacturing exemptions from the Sales and Use Tax. Newspapers do not enjoy the benefit of any special exemption in this regard and, as a consequence, are treated in the same manner as other manufacturers.

In the production of newspapers, the Department considers the manufacturing production process to begin with the plate. The plate is a form of a tool which produces a direct effect upon the product by making the impressions of the printed page when paper meets the inked plate. As such, the plate is a tool which meets the requirements for exemption under section 12-412(18) of the Connecticut General Statutes and section 12-426-11b(a)(13) of the Regulations of Connecticut State Agencies. If future technological advances should change or replace the use of the plate, it would be incumbent upon the newspaper industry to seek clarification from the Department to whether any new process would be accorded similar treatment.

The machinery used in the press room is used directly in the manufacturing production process and, accordingly, meets the requirements for exemption in section 12-412(34) of the Connecticut General Statutes and section 12-426-11b(a)(9) and (11) of the Regulations of Connecticut State Agencies.

The Department considers all functions of a newspaper's operations prior to the plate production to be pre-production and therefore used indirectly in the manufacturing production process. In addition, section 12-412(34) of the Connecticut General Statutes states that data processing equipment is not entitled to an exemption even when used in the manufacturing production process.

Post-production activities occur after the manufacturing production process and are not entitled to an exemption.

In this regard, the Department cites the case of Plastic Tooling Aids Laboratory, Inc. v. Commissioner, 213 Conn. 365 (371) 1990, in which the court narrowed the scope of direct use and limited the scope of the manufacturing production process:

In Connecticut Water Co. v. Barbato, 206 Conn. 337, 343, 537 A.2d 490 (1988), we concluded that the regulation presently defining "manufacturing"; Regs. Conn. State Agencies 12-426-11b(a)(10); validly requires a taxpayer claiming an exemption for machinery "used directly in a manufacturing . . . process" to prove a direct connection with a process that results in the substantial transformation of the "'form, composition or character'" of personal property. Id., 343 n.6. This circumscribed regulatory definition of "manufacturing" narrows the scope of the statutory exemption for machinery "used directly in a manufacturing . . . process" to one that is less inclusive than it was when United Aircraft Corporation and Ziperstein were decided. Id. The regulatory definition of "manufacturing" also limits the scope of "manufacturing production process" in 12-426-11b(a)(11) of the Regulations of Connecticut State Agencies. Read conjointly, these regulations make the statutory exemption available only upon a showing that the machinery at issue is used in "one of a series of production activities" that results in a substantial change in the "form, composition or character" of personal property.

The scope of the manufacturing production process in newspaper operations

The Department has determined that the manufacturing production process begins with the use of the plate. The stages prior to plate, including plate-making, are considered to be preproduction and, therefore, outside the parameter of the manufacturing production process as it is defined in Regulations section 12-426-11b(11). Materials and supplies used in the preproduction stage do not meet the requirements for exemption as production materials under section 12-412(18) because they do not become a component part of tangible personal property to be sold and are not used directly in an industrial plant in the actual fabrication of a finished product to be sold. In addition, machinery used in preproduction does not qualify for exemption under section 12-412(34) because it is not used directly in the manufacturing production process. In this regard, Plastic Tooling Aids Laboratory, Inc. v. Commissioner, 213 Conn. 365, 371 (1990) sets forth the requirement that, when claiming an exemption for machinery used directly in a manufacturing production process, a taxpayer must prove a direct connection with a process that results in the substantial transformation of the form, composition or character of tangible personal property.

The manufacturing production process begins with the use of the plate which is the surface carrying an image to be inked and transferred to paper or other media. The plate is a "tool" which when positioned on the press produces a direct effect upon the product by making impressions of the printed image when the plate or, in the case of offset lithographic printing, the blanket meets the paper or other media. As such, the plate and/or blanket and the materials directly incorporated into them meet the requirements for exemption as a "tool"under Regulations section 12-426-11b(a)(13). As a tool, the raw materials which physically make up the plate and chemicals which are physically applied to the plate proper may be purchased exempt from tax.

The process from the use of the plate forward through and including the inserting and sorting stage is considered to be the manufacturing production process. The machinery used to print the finished product is used directly in the manufacturing production process at an industrial plant and, accordingly, meets the requirements for exemption in section 12-412(34) and Regulations section 12-426-11b(a)(7), (9), (10) and (11).

Preproduction purchases by newspapers

Newspapers must pay Sales and Use Tax on the purchase of all materials, supplies, equipment, tools and machinery used in the preproduction phases of their business operations. While this list in not all-inclusive, the preproduction phases would include, all layout, design, typesetting, galleys, paste-up procedures, mounting boards used to make mechanicals, computer-aided designs, electronic page assembly, and color separation in making camera-ready copy, cameras, film and other items used in preparation work, stripping procedures in making a flat (i.e. the assimilated composition of negatives and positives) prior to plate-making, and the plate-making process.

Post-production activities

Under Regulations section 12-426-11b(a)(11), the manufacturing production process does not include any activities following the last production stage such as casing, loading or delivery to the consumer. The Department considers bundling and counting to be post-production activities occurring after the manufacturing production process and, as such, not entitled to an exemption from the Sales and Use Tax.

Compliance

This policy statement is a restatement of the Department's existing policy of the Sales and Use Tax treatment of the newspaper industry. Recognizing that the Department's policy may not have been circulated throughout the entire industry, the Department expects all members of the newspaper industry to be in compliance with this policy statement by July 1, 1990.


Issued: 6-90