Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
440.0000 PROPERTY USED IN MANUFACTURING—Regulation 1525
(a) MANUFACTURING AIDS
(1) In General
440.0049 Manufacturing Aids. Regulation 1525.1 discusses when title to a manufacturing aid passes to the manufacturer's customer. However, before this issue is relevant, it must be determined that title to the manufacturing aid actually passes from the manufacturer to its customer. When possession of the tooling is retained by the manufacturer, this issue often presents a difficult question of fact which must be determined on a case by case basis.
For example, a manufacturer purchases raw materials for resale and fabricates those raw materials at the specific request of its customer into a manufacturing aid. The manufacturing aid is of unique utility to the particular customer for whom the associated production work is being performed and the manufacturer separately itemizes a specific charge for the manufacturing aid to the customer. If (1) the customer's name is put on the pattern and a file maintained for its location, (2) the customer's name and part number is on the pattern or die, (3) the customer makes repeated orders for items to be produced by use of the same aid, (4) the manufacturer insures the manufacturing aid against loss for the benefit of the customer, or (5) the manufacturer establishes that it orally stated that the customer may have the manufacturing aid upon request, the manufacturer will generally be regarded as having sold the manufacturing aid to its customer.
However, the contract between the two parties must be examined. Generally, if the contract specifically provides that the manufacturer retains title, then it is rebuttably presumed that no sale of the manufacturing aid occurred, regardless of the existence of any of the factors set forth in the previous paragraph. This presumption is rebutted by, among other things, the inclusion of an exclusive use clause (i.e. a clause providing that the manufacturer's customer has the right to exclusive use of the manufacturing aid), if the manufacturing aid is used to fill multiple orders for items produced by the manufacturing aid. 4/3/03. (2004–1).