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
440.0058 Title to Tooling. A manufacturer of door knobs designs and fabricates the tooling to be used in the manufacturing process when a customer orders a new style of door knob. The customer's purchase order typically includes language to the effect that the customer has both title and a right to possession in the tooling, but the manufacturer shall retain possession for use in performing the job. The customer insists on these provisions to ensure that the designs will not become available for use by its competitors. The customer is billed separately for the tooling.
The manufacturer contends that, despite any contrary language in the sale document, it did not intend to pass title in the tooling to the customer since the tooling may contain clues to the manufacturer's manufacturing process, which the manufacturer considers a trade secret and does not want to reveal to its customers. Therefore, the manufacturer has never transferred possession of the tooling to any customer and would never do so even if the customer demanded possession.
Under the above circumstances, there is a sale of tooling from the manufacturer to the customer since the sale documents expressly provided that title in tooling would pass to the customer. Only when the terms of the contract are uncertain and ambiguous is it proper to look at extrinsic evidence to ascertain the parties' intent. 4/4/89.