Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 435.0150


435.0150 Tapes and Reels. A taxpayer provides processing services and specializes in surface mount device tape and reeling. Surface mount device tape and reel service involves placing customer provided semiconductor chips onto a special carrier tape. The tapes contain recesses where the chips are placed. A clear film is then placed over the carrier tape to prevent the chips from falling out. The filled tape is then rolled up on a reel. The reel containing the filled carrier tape is then packaged and shipped to the customer.

The customer loads the reel onto an assembly machine. The carrier tape from the reel is fed into the assembly machine similar to a machine gun belt. The assembly machine removes the chips from the tape and stamps the chips onto circuit boards. The carrier tape is emptied and discarded by the customer. The reel is also discarded when it becomes empty. The chips are expensive sensitive devices. They cannot be loaded onto a machine by simply dumping the chips into a hopper. The assembly machines are designed to accept these semiconductor chips via the tape and reel system. Without the tape and reel system, the semiconductor chips cannot be loaded into the assembly machine.

With the taping service, the taxpayer includes various levels of inspection of the semiconductor chips. The fee for the tape and reel service varies with the level of the inspection service chosen by the customer.

The customer/manufacturer is purchasing the tapes and reels which are used in the manufacturing process to keep the chips from being damaged. Thus, the taxpayer is selling tangible personal property (the reels and tapes) to be used as manufacturing aids and any service provided, such as chip placements and inspection, are incidental to that sale. Therefore, the total gross receipts from the sale of the reels and tapes are taxable. 1/21/94.