Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Sales and Use Tax Annotations


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440.0000 PROPERTY USED IN MANUFACTURING—Regulation 1525

Annotation 440.0055.140

(a) MANUFACTURING AIDS

(1) In General

440.0055.140 Property Purchased for Resale or Use in Manufacturing. The following are some guidelines in determining whether property is purchased for resale or for use in manufacturing:

(1) Tangible personal property is regarded as having been purchased for the purpose of use in manufacturing tangible personal property and not for the purpose of being physically incorporated into the manufactured article to be sold, if the property is first utilized as an aid in the manufacturing process prior to being resold as an end product. Independent intervening use of the purchased tangible personal property as a manufacturing aid prior to its resale is subject to tax, notwithstanding the fact that the tangible personal property also was purchased for the purpose of incorporation into an end product which is sold. (For example, see Annotations 440.0840, 440.1260, 440.1460, and 440.3120.)

(2) Tangible personal property is regarded as having been purchased for the purpose of incorporation into the manufactured article to be sold even though a portion of the property is lost or discarded as waste. For example, a manufacturer of furniture purchases wood to be used in the construction of furniture to be sold. A portion of the wood is destroyed or discarded as a result of the manufacturing process and does not actually become a part of the furniture. The purchase of the wood is not subject to tax.

(3) Tangible personal property is not regarded as having been purchased primarily for resale, but primarily for the purpose of use in the manufacturing process, if the property is only incidentally incorporated into the manufactured article, e.g., the property does not become a recognizable and identifiable component which is of some benefit to the end product to be sold. (For example, see Annotations 440.1340 and 440.1820.)

(4) During the manufacturing process, tangible personal property may perform some beneficial use as a manufacturing aid, but may also become incorporated into the product to be resold. When tangible personal property is purchased and used for more than one purpose in the manufacturing process, the application of tax is dependent upon the primary purpose for which the tangible personal property is purchased.

Tangible personal property is regarded as having been purchased primarily for the purpose of incorporation into the manufactured article if the property becomes an essential ingredient or component part with a beneficial purpose in the end product which is sold. Tax does not apply to the sale of tangible personal property which is purchased primarily for the purpose of incorporation into the manufactured article to be resold, even though the property may be used incidentally as an aid while it is being incorporated or attached in the manufacturing process.

(5) Tangible personal property is regarded as having been purchased primarily for the purpose of incorporation into the manufactured article to be sold, even though a component or component parts of the property may be used in the manufacturing process and not resold as an ingredient or component part of the finished article, if the component(s) which are used in the manufacturing process are used only for the purpose of incorporating the remainder of the property into the end product to be sold.

(6) Where a portion of the tangible personal property is purchased for the purpose of use in the manufacture of tangible personal property, and another portion of the tangible personal property is purchased for the sole purpose of incorporation as an essential ingredient or component part of a manufactured article to be sold, tax applies only to the sale of the property purchased for the purpose of use. The purchaser must keep records which establish to the satisfaction of the Board what portion is resold and what portion is used. (For example, see Annotation 440.0640.)

(7) Tax applies to the sale of tangible personal property to manufacturers and refiners who purchase the property for the purpose of use or consumption in the manufacturing or refining process. Where the manufacturer or refiner uses or consumes a byproduct of a joint product which is produced in a manufacturing or refining process, tax applies to that portion of the purchased raw material which comprises the used or consumed byproduct, unless such use or consumption is otherwise exempt from taxation. The measure of tax on self-consumed byproducts shall be determined in accordance with the guidelines as provided under Regulation 1525.5. Tax would apply even though the self-consumed byproduct is subsequently resold by the manufacturer or refiner, since it was purchased for the purpose of use, rather than for resale. 5/22/87.