DRS: Ruling 94-6, Sales and Use Taxes / Utility Exemption - Manufacturing

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

Ruling 94-6

Sales and Use Taxes
Utility Exemption - Manufacturing


FACTS:

The Company, a newspaper publisher and printer, conducts its business in two separate buildings. The Company has requested a ruling with respect to the building that houses the Company's prepress operations, including its advertising department, composing room, art services department, camera room, editorial department, photo dark room and classified advertising department.


ISSUE:

Whether a building which houses a newspaper publisher's prepress operations qualifies for the exemption under Conn. Gen. Stat. 12-412(3)(A) for electricity used directly in the fabrication of a finished product to be sold or in an industrial manufacturing plant.


DISCUSSION:

Conn. Gen. Stat. 12-412(3)(A) provides an exemption for electricity used directly in the fabrication of a finished product to be sold or in an industrial manufacturing plant, where at least 75 percent of the gas or electricity consumed at a metered building, location or premises is used for such fabrication or manufacturing.

The Department must interpret Conn. Gen. Stat. 12-412(3)(A) in light of the law as it existed in 1989, when the exemption was amended by 1989 Conn. Pub. Acts 251, 12 to restrict its availability for fabricators and industrial manufacturing plants. In enacting a law, the legislature presumably "did so in view of existing relevant statutes and intended it to be read with them so as to make one consistent body of law [citations omitted]." International Business Machines Corp. v. Brown, 167 Conn. 123, 135, 355 A.2d 236 (1974). Because the same or similar terms are found in both Conn. Gen. Stat. 12-412(3)(A) and the preexisting manufacturing exemptions in Conn. Gen. Stat. 12-412(18) and (34), the definitions in the manufacturing exemptions and the regulations thereunder will be used in interpreting "actual fabrication" and "industrial manufacturing plant" in Conn. Gen. Stat. 12-412(3)(A).

Conn. Agencies Regs. 12-412(18)-1(f) defines "actual fabrication" as "an operation or an integrated series of operations that alter or modify a manufactured product or raw materials, whether or not a change in the identity of the product or materials occurs." Among the guidelines included in the regulation for determining whether a process is "actual fabrication" is one stating that the "process must be commonly regarded as fabrication," providing the examples of "assembling, cutting, perforating, painting, coating and similar operations." Given these examples of processes "commonly regarded as fabrication," the activities involved in a newspaper publisher's prepress production, taken as a whole, are not "commonly regarded as fabrication" and do not meet the requirements to be considered "fabrication" for purposes of either Conn. Agencies Regs. 12-412-18(f) or Conn. Gen. Stat. 12-412(3)(A). Even if particular aspects of the Company's prepress activities could be regarded as fabrication, the exemption would only be available if the Company can demonstrate that 75 percent or more of the gas or electricity consumed at the building is consumed in such activities.

The definition of "industrial manufacturing plant" for purposes of Conn. Gen. Stat. 12-412(3)(A) may be found in Conn. Agencies Regs. 12-412(18)-1(e). (In the regulation, the definition includes a requirement that the predominant purpose of the establishment must be the fabrication or manufacture "of a finished product to be sold." The requirement that the process must result in a finished product to be sold is not relevant to the exemption in Conn. Gen. Stat. 12-412(3); therefore, this requirement should be disregarded for purposes of interpreting Conn. Gen. Stat. 12-412(3)(A)). The term "industrial manufacturing plant" is defined in the regulation as "an establishment which has actual fabrication or ... manufacture ... as its predominant purpose and that is generally recognized as such."

A distinction is made in Conn. Agencies Regs. 12-412(18)-1(f)(4) between fabrication and manufacturing:

Fabrication involves the alteration or modification of a manufactured product or raw materials, whether or not a change in the identity of the product occurs[, whereas] ... [manufacturing involves the substantial transformation of the form, composition or character of raw or finished materials into a product possessing a new name, nature or use. A process that is regarded as manufacturing will be regarded as fabrication, but a process that is regarded as fabrication will not necessarily be regarded as manufacturing.

The Company's prepress operations do not involve a "substantial transformation" such as is described in the definition of "manufacturing" in Conn. Agencies Regs. 12-412(18)-1(f)(4). In addition, as noted above, the Company is not commonly recognized as having actual fabrication as its predominant purpose in the building housing its prepress operations. Therefore, the building in which the prepress operations are carried on cannot be considered an industrial manufacturing plant.

Additional support for this conclusion may be found in the 1991 enactment of the exemption in Conn. Gen. Stat. 12-412(72). While the Department has considered commercial printers to be engaged in "actual fabrication" and "manufacturing" within the meaning of the exemptions in Conn. Gen. Stat. 12-412(18) and (34), prepress operations have never been considered to be within the scope of the manufacturing production process. (See Policy Statement 90-3.) By enacting a new exemption specifically for prepress operations, the General Assembly has, in effect, ratified the Department's position that such operations were neither "actual fabrication" nor "manufacturing" as defined in Conn. Gen. Stat. 12-412(18) and (34) and the regulations thereunder.


RULING:

The electricity consumed in the Company's building in which it conducts its prepress operations does not qualify for exemption under Conn. Gen. Stat. 12-412(3)(A) either as being used directly in the actual fabrication of a finished product to be sold or as being used in an industrial manufacturing plant.


LEGAL DIVISION

Issued: March 7, 1994