Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
345.0000 MANUFACTURERS OF PERSONAL PROPERTY—Regulation 1524
345.0082 Quality Assurance Testing Charges. A manufacturer of printed circuit boards offers a testing service in connection with its sales of printed circuit boards.
In order to test the printed board, the manufacturer assembles a "fixture" which adapts the board to be tested to the bare board tester. The only part of the "fixture" that is special for a particular customer's board is a piece of plastic which is drilled to match the holes in the customer's board. This specially drilled board is reusable and becomes the property of the customer.
Generally, charges for quality assurance testing are taxable or nontaxable, depending upon whether the item tested is sold for resale or sold at retail. Generally, testing charges are nontaxable, even if separately stated, when the item tested is sold for resale. Generally, testing charges are taxable, whether separately stated or not, if the item tested is sold at retail.
The problem is complicated when tooling or fixtures are sold to the customer. The charge made to the customer for the tooling, which becomes the property of the customer, is always taxable whether the items tested are sold for resale or sold at retail. Property becoming a component part of the tooling fixtures which the manufacturer sells to the customer may be purchased by the manufacturer for resale.
In this case, it is evident that the only piece of the fixture which is possibly sold to the customer is the drilled plexiglass plate. It is clear that title to other tooling items are retained by the manufacturer. Accordingly, tax applies to some portion of the fixture charge, the portion of the charge attributable to the fabricated plexiglass plate.
If the facts were that the customer did not become the owner of the plate, matters would be simplified greatly. The manufacturer would be the consumer of all tooling items, including the plexiglass materials, and tax would apply on the sale of these items to the manufacturer. Then, the taxability of the itemized testing charge to the client is dependent only upon the nature of the sale of the parts as a resale or a sale at retail, as previously discussed.
If the manufacturer provides testing service only, the charge is not subject to tax. The assumption here is that it is testing customer furnished parts and it does not transfer title to any property to the customer. 7/10/91.