Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 440.0059


(1) In General

440.0059 Tooling. A company is in the business of designing and manufacturing door knobs. The major customers are lock manufacturers who apparently incorporate the knobs into lock sets for sale under their own brand names. Each time a customer orders a new style of door knob, the company must design and fabricate the tooling to be used in the manufacturing process. The customer's purchase orders typically include language to the effect that the customer has both title and right to possession to the tooling, but that the company shall retain possession for use in performing the job. The company has never transferred possession of the tooling to any customer. The company bills the customers for tooling in two distinct ways: (1) a lump-sum charge for the material cost which is labeled a "gage charge" or "tooling charge," and (2) the charge for design and fabrication of the tooling is billed under the label "knob development charge" or "development service charge."

The sales documents expressly provide that title in the tooling passes to the customers. Since the contracts expressly provide that title in the tooling passes to the customers, title does pass and tax is due on not only the gage share or tooling charge (material costs) but also on the charges for the knob development charge or the development service charge (design and fabrication of the tooling). 4/4/89.