FACTS: Acton Photography Studios produces wedding and portrait photographs to order. It has several studios in Massachusetts and also operates a central photofinishing facility to process all its film into photographs for sale. The negatives are not used for any other purpose. Action's photofinishing facility is an industrial plant within the meaning of G.L. c. 64H, § 6(r).

ISSUE: Are Acton's purchases of film exempt from sales tax?

DISCUSSION: Under G.L. c. 64H, § 6(r) a material is exempt from sales tax if it is (1) consumed and used (2) directly and exclusively in an industrial plant (3) in the actual manufacture, conversion or processing (4) of tangible personal property to be sold. G.L. c. 64H, § 6(r). These requirements are interrelated, and all four must be satisfied for the exemption to apply.

Since Acton's photofinishing facility is an industrial plant and the film is processed there into tangible personal property for sale, the last three requirements of G.L. c. 64H, § 6(r) are met. The film will therefore be exempt from the sales tax if it also meets the first requirement, i.e., if it is "consumed and used" in the industrial plant within the meaning of the statute. A material is "consumed and used" only if "its normal useful life is less than one year or if its cost is allowable as an ordinary and necessary business expense for federal income tax purposes. . . ." Id. Since the cost of the film is allowed as an ordinary and necessary business expense, the film is "consumed and used" for purposes of § 6(r). The film thus meets all four requirements for exemption from sales tax.

DIRECTIVE: Acton's purchases of film are exempt from sales tax as materials consumed and used directly and exclusively in an industrial plant in the actual manufacture, conversion or processing of tangible personal property to be sold.

REFERENCE: G.L. c. 64H, § 6(r).

/s/Stephen W. Kidder
Stephen W. Kidder
Commissioner of Revenue

September 30, 1988

DD 88-9

This Directive represents the official position of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 CMR 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.