Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
435.0000 PRODUCING, FABRICATING AND PROCESSING PROPERTY FURNISHED BY CONSUMERS—GENERAL RULES—Regulation 1526
(c) MISCELLANEOUS OPERATIONS
435.1666 "Tape Reel." A company contracts with an outside vendor to package electronic components into a form called a "tape reel." The company supplies the vendor with loose components that are eventually returned to the company and are incorporated into a finished product which is sold by the company. The vendor uses a machine to align the individual components side by side into a linear sequence which is specified by the company. The vendor attaches two strips of adhesive tape to the components, one strip linking together one end of the components and the other strips linking together the components' opposite end. The end result is the production of a large "reel" which resembles a ladder. The "reel" is transferred into a machine which cuts the components off the adhesive strip and automatically places the electronic components on printed circuit boards. The adhesive strips are subsequently discarded by the company.
The uniting of the individual electronic component parts by the company's vendor into a "tape reel" by taping the components together into a specified sequence constitutes "fabricating." The purpose for placing adhesive strips on both sides of the components is to ensure the proper order and alignment of the individual components and to convert the individual unit into a form which is usable by the company in the manufacturing of printed circuit boards. Although the individual components become incorporated into the finished product which is sold by the company, the "tape reel" itself is not resold by the company. Accordingly, the vendor fabricates customer furnished tangible personal property and this fabrication results in a taxable sale. The measure of tax is the vendor's gross receipts from the sale. 1/18/84.