PS 95(4)

Purchases of Machinery, Equipment, Tools, Materials and Supplies By Commercial Printers and Publishers

This publication has been superseded by PS 2001(7)

PURPOSE: In 1991 Conn. Pub. Acts 3, §117 (June Spec. Sess.) and 1992 Conn. Pub. Acts 5, §28 (May Spec. Sess.), the Connecticut General Assembly enacted two exemptions for purchases of machinery, equipment, tools, materials and supplies. The first exemption covers purchases of such items by commercial printers and publishers for use exclusively in the production of printed material (Conn. Gen. Stat. §12-412(71)), and the second exemption applies to purchases by persons producing typesetting, color separation, finished copy with type proofs and artwork or similar content mounted for photomechanical reproduction, or other similar products to be sold for use in the production of printed materials (Conn. Gen. Stat. §12-412(72)). This Policy Statement describes the application of the exemptions from sales and use taxes provided in Conn. Gen. Stat. §12-412(71) and (72).

EFFECTIVE DATES: Effective for sales to commercial printers and to establishments engaged in prepress production of printed materials occurring on and after October 1, 1991, and for sales to publishers occurring on and after July 1, 1992.

STATUTORY AUTHORITY: Conn. Gen. Stat. §12-412(71) and (72).

DEFINITIONS:

1. Commercial printers are actively and primarily engaged in the business of printing, as described in Industry Group Nos. 275 through 279 of the Standard Industrial Classification Manual, Office of Management and Budget (1987) (the "SICManual"). Commercial printers generally perform work on a job or custom basis, but may also in some cases sell their product themselves.

Establishments primarily engaged in providing photocopying services are not "commercial printers." Also, print shops that do not sell their product (such as in-house print shops) are not actively engaged in the business of printing and do not qualify as commercial printers.

2. Publishers are primarily engaged in the business of preparing and distributing, whether by sale or otherwise, books, periodicals, newspapers and other printed materials, including but not limited to items listed in Industry Group Nos. 271 through 274 of the SIC Manual, but excluding items specifically listed elsewhere in the SIC Manual. Publishers may have in-house printing facilities or they may use independent contractors to perform the actual printing of the material being published.

3. Primarily means chiefly. For example, if an establishment is engaged in two different activities, one of which would qualify it as a commercial printer or publisher and the other of which would not, the establishment is engaged primarily in the activity from which it earns more than 50 percent of its income. If an establishment believes that the criterion of its income does not adequately represent the relative economic importance of each of the activities it carries on, the commissioner may agree to allow the establishment to base the determination of its primary activity on the number of employees working at each activity and the wages and salaries of the employees working at each activity.

4. Prepress production includes the production of typesetting, color separation, finished copy with type proofs and artwork or similar content mounted for photomechanical reproduction, or other similar products to be sold for use in the production of printed materials. An establishment must be engaged in such prepress production in order to qualify for exemption under Conn. Gen. Stat. §12-412(72).

5. Machinery means the basic machine itself, including all of its component parts and contrivances, such as belts, pulleys, shafts, moving parts, operating structures and all equipment or devices used or required to control, regulate or operate the machinery. A "machine" is a device composed of solid, fluid or electrical parts assembled into a unit for the purpose of transmitting forces, motion and energy. Component parts and contrivances sold in the same transaction with the basic machine may be purchased under the exemptions in Conn. Gen. Stat. §12-412(71) and (72), if such component parts and contrivances are directly connected with, or are an integral part of, machinery.

A machine used exclusively to control or monitor an activity occurring during commercial printing or prepress production, or to design printed material as well as to control or monitor an activity occurring during such processes, and that is directly linked with machinery described above, qualifies for exemption. Thus, for example, a photocopier, word processor, text editing machine or computerized equipment that is used exclusively as part of a commercial printing operation, or to prepare prepress products to be sold to commercial printers or publishers, may be purchased exempt. If such machinery is used for any administrative, non-production purposes, it does not qualify for exemption.

The exemptions under Conn. Gen. Stat. §12-412(71) and (72) were intended to extend to such non-manufacturers as publishers the exempt status as manufacturers historically accorded to commercial printers, and to expand the scope of the exempt process to include prepress operations, and not to reduce any of the benefits already realized by commercial printers under the manufacturing exemptions. As with repair or replacement parts purchased for exempt manufacturing machinery under Conn. Gen. Stat. §12-412(34), repair or replacement parts for machinery exempted under Conn. Gen. Stat. §12-412(71) or (72) sold separately from such machinery do not qualify for exemption under such subsections. However, if a repair or replacement part is for machinery that would have been exempt as manufacturing machinery under Conn. Gen. Stat. 12-412(34), it may be purchased under the partial exemption of the Manufacturing Recovery Act of 1992 (the"MRA") and the reduced rate of tax (5.5%) imposed by Conn. Gen. Stat. §12-408(1)(a) (see discussion in Special Notice 93(1.1), p. 5). If a repair or replacement part is for machinery that is exempted solely by virtue of Conn. Gen. Stat. §12-412(71) or (72) (and would not have been exempt under Conn. Gen. Stat. §12-412(34)), it may be purchased under the partial exemption of the MRA, but does not qualify for the reduced rate of tax. In addition, the exemption provided by Conn. Gen. Stat. §12-412(73) (covering component parts of a machine which would have been exempt under Conn. Gen. Stat. §12-412(34) if purchased already assembled into a machine) may apply to purchases of machinery parts by commercial printers, publishers and persons engaged in prepress production.

Because prewritten (or "canned") software used on a machine eligible for exemption under Conn. Gen. Stat. §12-412(71) or (72) is considered "equipment or [a] device used or required to control, regulate or operate the machinery," its purchase qualifies for exemption, whether or not such software is purchased in the same transaction with the machinery on which it is used. The cost of services rendered in connection with either the creation of custom software or the customization of software, when such software is purchased with the exempt machinery on which it is to be used, is part of the "sales price" and "gross receipts" under Conn. Gen. Stat. §12-407(8) and (9); as such, the cost of such software will not be considered separately from the purchase price of the machinery and will be included within the exemption. However, because the exemption under Conn. Gen. Stat. §12-412(71) or (72) applies only to tangible personal property and not to services, charges for computer and data processing services rendered in connection with the purchase of custom or customized software in a transaction separate from the purchase of the machinery on which such software is to be used, or in connection with later purchases of custom or customized software, will be subject to tax under Conn. Gen. Stat. §12-407(2)(i)(A).

6. Equipment means a device separate from machinery but essential to a commercial printing process or to prepress production. Equipment may be considered "essential" if the commercial printing or prepress production process cannot proceed without that equipment. For example, a camera used exclusively to prepare color separations which will be sold to a commercial printer or publisher as a prepress product, or a light table used for layout work and to set out printing jobs, qualifies for exemption. The fact that equipment is required by law, such as screens or railings required for safety, or by practical necessity, such as ceiling lights or sound proofing panels in a pressroom, does not of itself render equipment "essential."

7. Tools include hand tools, such as hammers, chisels, wrenches, screwdrivers, saws and stripping knives. The term also includes tools that are used in the operation of machinery, such as printing plates or blankets, dies or punches, accessory tools that hold or align a piece of work undergoing commercial printing or prepress production or a tool used in such process, and specialized tools used in commercial printing or prepress production of printed material, such as slug cutters, mallets and blocks, type measures and densitometers.

8. Materials and supplies include: (a) items that become an ingredient or component part of printed material, such as ink, paper, glue and staples; (b) items that become an ingredient or component part of prepress products, such as metal for making type, photographic film used for color separations, and paper and ink used in artwork; (c) items that are consumed or destroyed in the commercial printing process, such as cushion paper or tissue paper used to build up the printing surface of a press, blotting paper, mounting tape, drying powders, lubricants, chemicals and solvents; (d) items that are consumed or destroyed in prepress production, such as photographic chemicals, masking paper and tape; and (e) artwork or similar content mounted for photomechanical reproduction.

ITEMS PURCHASED BY COMMERCIAL PRINTERS AND PUBLISHERS: Commercial printers and publishers may purchase machinery, equipment, tools, materials and supplies which they will use exclusively in the production of printed material under the exemption provided in Conn. Gen. Stat. §12-412(71). The production of printed material includes all processes necessary to convert manuscript copy into printed material, including but not limited to layout, color separation and typesetting. Processes occurring before manuscript copy is ready for conversion into printed material, such as drafting written material or creating graphic designs, are not considered the production of printed material.

Because the exemption is limited to machinery, equipment, tools, materials and supplies used exclusively in the production of printed materials, items used both in such production and for managerial, administrative, sales or other non-production purposes do not qualify for exemption.

The exemption for items used or consumed in the production of printed material applies to items used or consumed in the preproduction stage. Therefore, items purchased by a commercial printer or publisher to be used or consumed in such activities as layout, color separation, typesetting and plate making qualify for exemption. Activities such as taking photographs or drawing the illustrations to be printed or published occur prior to the beginning of the process and so the items used in such activities are not exempt under Conn. Gen. Stat. §12-412(71) (however, see the discussion below for items used or consumed in prepress production). The production of printed material continues through the press or printing stage, and ends when the bindery process, which includes such activities as drilling and punching, cutting and trimming, binding, coating, laminating, and packaging individual copies or sets, is complete. Activities such as sorting, handling, casing, loading, addressing or delivering printed materials to customers or consumers occur after the completion of the final stage in the production of printed material, and so items used or consumed in such activities do not qualify for exemption under Conn. Gen. Stat. §12-412(71).

ITEMS USED OR CONSUMED IN PREPRESS PRODUCTION: Machinery, equipment, tools, materials and supplies, used exclusively in the production of typesetting, color separation, finished copy with type proofs and artwork or similar products to be sold for use in the production of printed materials, may be purchased exempt by a person engaged in such prepress production under Conn. Gen. Stat. §12-412(72).

To qualify under Conn. Gen. Stat. §12-412(72), machinery, equipment, tools, materials and supplies must be used exclusively in prepress production of products to be sold for use in the production of printed material. Therefore, for example, items used for both prepress production and managerial, administrative, sales or other non-production purposes do not qualify for exemption.

CERTIFICATE OF EXEMPTION: A certificate (CERT-120) must be presented to the seller by the purchaser of machinery, equipment, tools, materials or supplies on the purchase of which exemption under Conn. Gen. Stat. §12-412(71) or (72) is claimed. Acceptance of this certificate in good faith by the seller from a purchaser engaged in commercial printing, publishing or prepress production shall relieve the seller of the burden of proving that the property purchased is subject to exemption under Conn. Gen. Stat. §12-412(71) or (72). If the purchaser makes any use of the property other than the use stated on the certificate, the property shall become subject to tax at the time of such use, based upon the full purchase price.

EFFECT ON OTHER DOCUMENTS: Subsections (b) and (c) of Conn. Agencies Regs. §12-426-20, Policy Statements 90-3 and 90-4, TSSN-30 (to the extent that it is not in accord with the policy set forth in herein) and Ruling Nos. 89-211, 90-54 and 90-73 are obsoleted by the enactment of Conn. Gen. Stat. §12-412(71) and (72) for sales occurring on and after October 1, 1991.

EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current Department policy or practice affecting the liability of taxpayers. Unlike a Letter Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions. 

PS 95(4)
Sales and use taxes
Issued: 8/24/95