Tax Rules: Final: 5703-9
5703-9-21 Sales and use tax; manufacturing
(A) For purposes of this rule, all purchases of tangible
personal property are taxable, except those in which the
purpose of the consumer is to incorporate the thing
transferred as a material or a part into tangible personal
property to be produced for sale by manufacturing,
assembling, processing, or refining or to use the thing
transferred, as described in section 5739.011 of the Revised
Code and this rule, primarily in a manufacturing operation to
produce tangible personal property for sale.
This means that a person who buys tangible personal property
and will make it a part or constituent of something that he
is manufacturing for sale, or buys something that is used in
a manufacturing operation, does not have to pay sales or use
tax on the thing purchased.
Tangible personal property purchased by a manufacturer as a
component or constituent of a product to be manufactured for
sale is excepted from sales and use tax. The purchase of all
such tangible personal property is not taxable, even though a
portion will be lost or removed as waste or for testing. The
manufacturer must pay use tax on the price, as defined in
division (G) of section 5741.01 of the Revised Code, of any
completed product not sold and stored or used by the
manufacturer in a taxable manner, except such product that is
consumed in testing or is disposed of because it is defective
or otherwise unsalable.
(B)(1) "Manufacturing operation" means a process in which
materials are changed, converted, or transformed into a
different state or form from which they previously existed
and includes refining materials, assembling parts, and
preparing raw materials and parts by mixing, measuring,
blending or otherwise committing such materials or parts to
the manufacturing process. "Manufacturing operation" does not
Tangible personal property purchased by a manufacturer for
use in packaging is taxable unless exempted pursuant to
division (B)(15) of section 5739.02 of the Revised Code.
Any business whose sole activity is a process that does not
include conversion or alteration of tangible personal
property into a different state or form is not a manufacturer
and is not covered by this rule.
The manufacturing operation begins when the raw materials or
parts are committed to the manufacturing process. If the raw
materials or parts are stored after being received at the
manufacturing facility, the raw materials or parts are not
committed until after they are removed from such initial
storage. The point of commitment is where the materials
handling from such initial storage has ceased or the point
where the materials or parts have been mixed, measured,
blended, heated, cleaned, or otherwise treated or prepared
for the manufacturing process, whichever first occurs. If the
raw materials or parts are not stored, they are committed at
the point where materials handling from the place of receipt
ceases or where they are mixed, measured, blended, heated,
cleaned, or otherwise treated or prepared for the
manufacturing process, whichever first occurs. The commitment
of the materials or parts need not be irrevocable, but they
must have reached the point, after materials handling from
initial storage has ceased, where they normally will be
utilized within a short period of time. The point of
commitment frequently will be different for particular
materials and parts, since they are introduced at different
times in the manufacturing operation.
Things used in any activity, including movement or storage of
the materials or parts before they are committed are taxable.
See examples 1, 2, 3, 4, 6, 9, 40, 61, 63, and 64.
(2) "Refining" means removing or separating a desirable
product from raw or contaminated materials by distillation or
physical, mechanical, or chemical processes.
This definition of "refining" describes a type of
manufacturing process and is not limited to the petroleum
industry. A business whose sole activity is sorting material
by size or other physical characteristic, or washing dirt or
other contaminates from the surface of parts or other
materials is not engaged in refining.
See examples 4, 5, and 63.
(3) "Assembly" and "assembling" mean attaching or fitting
together parts to form a product, but do not include
packaging a product.
Assembly generally refers to the process whereby previously
manufactured parts or components are brought together and
attached to create a complete, or more complete, item.
See example 15.
(4) "Manufacturer" means a person who is engaged in
manufacturing, processing, assembling, or refining a product
(5) "Manufacturing facility" means a single location where a
manufacturing operation is conducted, including locations
consisting of one or more buildings or structures in a
contiguous area owned or controlled by the manufacturer.
The manufacturer does not have to own or lease the property,
but must have the legal right to use it. If the property
under the control of the manufacturer is not contiguous, it
is not a single manufacturing facility.
See examples 21, 23, and 57.
(6) "Materials handling" means the movement of the product
being or to be manufactured, during which movement the
product is not undergoing any substantial change or
alteration in its state or form.
(7) "Testing" means a process or procedure to identify the
properties or assure the quality of a material or part.
(8) "Completed product" means a manufactured item that is in
the form and condition as it will be sold by the
manufacturer. An item is completed when all processes that
change or alter its state or form or enhance its value are
finished, even though the item subsequently will be tested to
ensure its quality or be packaged for storage or shipment.
A product may be completed, as far as a particular
manufacturer is concerned, even though it is not in the form
in which it will be sold to the ultimate consumer because it
will be further manufactured by another manufacturer. If the
product will be further manufactured by the same manufacturer
at a different manufacturing facility, the product is still
in-process and is not completed.
See examples 8, 13, and 64.
(9) "Continuous manufacturing operation" means the process in
which raw materials or components are moved through the steps
whereby manufacturing occurs. Materials handling of raw
materials or parts from the point of receipt or
pre-production storage or of a completed product, to or from
storage, to or from packaging, or to the place from which the
completed product will be shipped, is not a part of a
continuous manufacturing operation.
The continuous manufacturing operation begins at the point
where the raw materials or parts are committed and ends at
the point where the product is completed.
There may be several continuous manufacturing operations at
the same manufacturing facility, each producing a different
The things used in the continuous manufacturing operation
include all production machinery, the materials handling
equipment that moves the product between the production
machines, and any equipment, such as tanks, shelves, or
racks, that temporarily store or hold the product in between
production machines. Even though testing equipment used to
test in-process product is not taxable under this rule, no
testing procedure is part of the continuous manufacturing
operation unless it is physically and functionally integrated
between steps on the production line.
See examples 1, 6, 8, 11, 19, and 63.
(C) Things transferred for use in a manufacturing operation
include, but are not limited to, any of the following:
(1) Production machinery and equipment that act upon the
product or machinery and equipment that treat the materials
or parts in preparation for the manufacturing operation.
Production machinery is the equipment that actually changes
the state or form of the product, that is, the tangible
personal property being manufactured for sale. Also included
is the equipment that treats the product by blending, mixing,
measuring, washing, agitating, filtering, heating, cooling,
or similar processes after the material or parts have been
committed to the manufacturing operation and before the
product is completed.
See examples 1, 4, 7, 8, 18, 24, 27, 32, 35, 56, 60, 61 and
(2) Materials handling equipment that moves the product
through a continuous manufacturing operation; equipment that
temporarily stores the product during the manufacturing
operation; or, excluding motor vehicles licensed to operate
on public highways, equipment used in intraplant or
interplant transfers of work in process where the plant or
plants between which transfers occur are manufacturing
facilities operated by the same person.
Any equipment, except motor vehicles registered for highway
operation, used to move or transport the in-process product
between manufacturing facilities of the same manufacturer, is
considered to be used in the manufacturing operation.
See examples 1, 8, 9, 10, 11, 57, 59, 60, 63, and 64.
(3) Catalysts, solvents, water, acids, oil, and similar
consumables that interact with the product and that are an
integral part of the manufacturing operation.
This describes those substances that do not appreciably
become a component part of the product, but which usually
come in contact with the product during the manufacturing
See examples 1, 13, 14, 28, 35, and 62.
(4) Machinery, equipment, and other tangible personal
property used during the manufacturing operation that
control, physically support, produce power for, lubricate, or
are otherwise necessary for the functioning of production
machinery and equipment and the continuation of the
Materials which are used to make foundations, supports, and
other things which are incorporated into a building or
structure and become accessions to the real estate may not be
purchased without payment of tax under this rule.
Foundations, structural steel, and similar items which
provide physical support and which retain their status as
personal property must be treated for purposes of taxation
separately from the equipment which they support.
Foundations and supports for production machinery, materials
handling equipment, and other equipment used in a continuous
manufacturing operation are not taxable. Similarly,
foundations and supports for tangible personal property used
to manufacture tangible personal property used in the
manufacturing operation, as described in paragraph (C)(5) of
this rule; for testing equipment, as described in paragraph
(C)(6) of this rule; and for equipment used to handle or
store scrap for recycling at the same facility, as described
in paragraph (C)(7) of this rule, are deemed necessary for
the continuation of the manufacturing operation and are not
Tangible personal property that monitors in-process product
or that lubricates, cools, monitors, or controls production
machinery, materials handling equipment, and other equipment
used in a continuous manufacturing operation is not taxable.
Similarly, tangible personal property that lubricates, cools,
monitors, or controls equipment used to manufacture tangible
personal property used in the manufacturing operation, as
described in paragraph (C)(5) of this rule; testing
equipment, as described in paragraph (C)(6) of this rule; and
equipment used to handle or store scrap for recycling at the
same facility, as described in paragraph (C)(7) of this rule,
is deemed necessary for the continuation of the manufacturing
operation and is not taxable. However, all equipment that
makes or stores records of monitoring is taxable.
See examples 1, 15, 16, 17, 18, 25, 29, 52, 55, 57, and 59.
(5) Machinery, equipment, fuel, power, material, parts, and
other tangible personal property used to manufacture
machinery, equipment, or other tangible personal property
used in manufacturing a product for sale.
If a manufacturer makes an item that is used in the
manufacturing operation as described in this rule, such as
tools, tooling, replacement parts for machinery, or
consumable substances, such as acid or solvents, the raw
materials and components that go into that item are not
Certain things used by the manufacturer to make the item that
will be used in the manufacturing operation are also not
taxable. These things include the machinery which
manufactures the item by changing the state or form of the
raw materials or components, the materials handling equipment
which moves the item between such machinery, and any fuel or
power used to operate the machinery or materials handling
After the item is in the form in which it will be used in the
manufacturing operation, any equipment that stores it or
moves it to or from the manufacturing operation is taxable.
See example 18.
(6) Machinery, equipment, and other tangible personal
property used by a manufacturer to test raw materials, the
product being manufactured, or the completed product.
The equipment and supplies that the manufacturer uses to
perform testing, and tangible personal property used to
physically support, control, lubricate, cool, or monitor such
equipment are not taxable. Those things that are merely used
in the lab or other area where testing occurs, but play no
part in the actual testing procedures, such as furniture,
storage equipment, and computers that record or store the
test results, are taxable. The testing activity is not part
of the continuous manufacturing operation unless it is
physically and functionally integrated between steps on the
production line. Materials handling equipment used to
transport test samples is taxable. Equipment and supplies
used to test fuel, consumables, equipment, or anything else
that is not a raw material, the product being manufactured,
or a completed product are taxable.
See examples 3, 4, 19, and 60.
(7) Machinery and equipment used to handle or temporarily
store scrap that is intended to be reused in the
manufacturing operation at the same manufacturing facility.
In this context, scrap is any portion or component of the
product being manufactured that is removed, intentionally or
unintentionally, from the manufacturing process or that is
residual after the process is completed. If the manufacturer
recycles the scrap back into the manufacturing operation at
the same facility, the equipment which moves or stores the
scrap is not taxable.
Scrap which is to be sold or to be reused as a raw material
by the manufacturer at another facility, is considered to be
processed in a manufacturing operation if the state or form
of the scrap is changed or altered. In such a case, the
scrap, as it is removed from the manufacturing operation, is
a raw material and the equipment which transports or stores
it before it is committed to the operation where it undergoes
manufacturing is taxable. After such manufacturing is over,
the processed scrap is a completed product.
See examples 22 to 24, 47, and 61.
(8) Electricity, coke, gas, water, steam, and similar
substances used in the manufacturing operation; machinery and
equipment used for, and fuel consumed in, producing or
extracting those substances; and machinery, equipment, and
other tangible personal property used to treat, filter, pump,
alter voltage, or otherwise make the substance suitable for
use in the manufacturing operation.
Anything that is a fuel or a source of power for machinery
used in the manufacturing operation, or that provides energy
for the manufacturing process itself, is not taxable.
Similarly, substances which transmit energy, such as steam or
cooling water which transmits heat to or from the process or
machinery, are not taxable. Any equipment that the
manufacturer uses to generate, produce, or extract these
substances, as well as fuel used to power such generation or
extraction, is not taxable.
Tangible personal property which treats the fuel or power is
not taxable. Such things may include coal crushers,
electrical transformers, fuel or water filters, and water
See examples 22 to 32, 59, and 64.
(9) Machinery, equipment, and other tangible personal
property used to transport or transmit electricity, coke,
gas, water, steam, or similar substances used in the
manufacturing operation from the point of generation, if
produced by the manufacturer, or from the point where the
substance enters the manufacturing facility, if purchased by
the manufacturer, to the manufacturing operation.
Such equipment includes wires, conduit, pipes, larry cars,
See examples 12, 22 to 32.
(10) Machinery, equipment, and other tangible personal
property that treats, filters, cools, refines, or otherwise
renders water, steam, acid, oil, solvents, or similar
substances used in the manufacturing operation reusable,
provided that the substances are intended for reuse and not
for disposal, sale, or transportation from the manufacturing
See examples 1, 20, 33, 34, 35, 36, 37, and 64.
(11) Parts, components, and repair and installation services
for items used in the manufacturing operation as described in
paragraph (C) of this rule.
Replacement parts for nontaxable equipment are not taxable.
Any repair service or installation service purchased from an
independent contractor for repairing or installing nontaxable
equipment is not taxable.
See examples 38, 44, 55, and 56.
(D) Things transferred for use in a manufacturing operation
do not include:
(1) Tangible personal property used in administrative,
personnel, security, inventory control, record keeping,
ordering, billing, or similar functions.
Those things that are used in the "non-manufacturing" aspects
of the manufacturer's business are generally taxable. This
includes what is broadly known as office equipment,
furniture, and supplies. Anything, including computers and
software, used for communication, ordering, billing,
inventory control, or record keeping, including testing or
production records, is taxable.
Things used in providing security include devices to monitor
or observe personnel or detect intruders.
See examples 7, 15, 16, 19, 39, and 55.
(2) Tangible personal property used in storing raw materials
or parts prior to the commencement of the manufacturing
operation or used to handle or store a completed product,
including storage that actively maintains a completed product
in a marketable state or form.
(3) Tangible personal property used to handle or store scrap
or waste intended for disposal, sale, or other disposition,
other than reuse in the manufacturing operation at the same
(4) Tangible personal property used to store fuel, water,
solvents, acid, oil, or similar items consumed in the
All types of storage, be it of raw materials or parts,
product (except in-process product), completed product,
consumables, fuel, waste, scrap, equipment, tools, supplies,
repair parts, etc., is taxable.
Similarly, anything used to handle, move, or transport people
or personal property in the manufacturing facility is
taxable, except for materials handling during a continuous
manufacturing operation or during the manufacture of an item
which will be used in the manufacturing operation, as
described in paragraph (C)(5) of this rule, or the
transmission of fuel, power, and similar substances as
described in paragraph (C)(9) of this rule.
See examples 1, 2, 3, 4, 6, 9, 11, 20, 37, 40, 41, 42, 43,
44, 47, 59, 60, 61, and 64.
(5) Tangible personal property that is or is to be
incorporated into realty.
Any tangible personal property that will become part of the
real estate is taxable under this rule.
See examples 32, 45, and 46.
(6) Machinery, equipment, and other tangible personal
property used for ventilation, dust, or gas collection,
humidity or temperature regulation, or similar environmental
control, except machinery, equipment, and other tangible
personal property that totally regulates the environment in a
special and limited area of the manufacturing facility where
the regulation is essential for production to occur.
All equipment and supplies that monitor, regulate, or improve
the environmental conditions in the manufacturing facility
are taxable. This includes all lighting, heaters, air
conditioning equipment, fans, heat exhaust equipment, air
make up equipment, dust control or collection equipment, and
gas detection, collection, and exhaust equipment. This should
not be read to change the traditional classification of real
and personal property.
The only exception to the taxing of these items is equipment
which totally regulates the environment in a special and
limited area of the facility, such as a clean room or paint
booth, where such total regulation is essential for
production to occur. Even in such a special area, things that
do not provide essential environmental regulation, such as
safety or communication equipment, are taxable.
See examples 7, 47, 48, and 49.
(7) Tangible personal property used for the protection and
safety of workers, unless the property is attached to or
incorporated into machinery and equipment used in a
continuous manufacturing operation.
Protective clothing and devices, such as safety shoes,
gloves, earplugs, hard hats, respirators, first aid supplies,
etc. are taxable. Similarly, equipment installed to protect
workers or shield them from harm is taxable, unless it is
made a part of machinery or equipment used in a continuous
Equipment and supplies used to detect, extinguish, prevent,
cure, or mitigate fire, explosion, flood, or other calamity
in the manufacturing facility are taxable.
See examples 9, 43, 50, 51, 52, and 53.
(8) Machinery, equipment, and other tangible personal
property used for research and development.
See examples 18 and 54.
(9) Machinery, equipment, and other tangible personal
property used to clean, repair, or maintain real or personal
property in the manufacturing facility.
Tools, equipment, and supplies made or purchased by the
manufacturer for use in maintaining, installing, repairing,
or cleaning its property, real or personal, are taxable. This
includes any such items used on nontaxable equipment. This
does not apply to repair or replacement parts or supplies
which are taxable or not, depending on the taxability of the
equipment into which they are installed.
See examples 32, 55, 56, and 58.
(10) Motor vehicles registered for operation on the public
See examples 21, 57, and 63.
(E) For purposes of this rule, any tangible personal property
used by a manufacturer in both a taxable and a nontaxable
manner shall be totally taxable or totally exempt from
taxation based upon its quantified primary use. If the
tangible personal property consists of fungibles, they shall
be taxed upon the proportion of the fungibles used in a
See examples 19, 25, 59 and 64.
(F) Persons whose only activity is printing and whose product
produced for sale consists wholly of printed matter are not
manufacturers under this rule. The taxability of things used
by printers must be determined pursuant to division (E)(8) of
section 5739.01 of the Revised Code.
If a portion of a manufacturer's manufacturing process
involves printing, the taxability of the tangible personal
property primarily devoted to the printing operation shall be
determined pursuant to division (E)(8) of section 5739.01 of
the Revised Code.
(G) Nothing in this rule restricts or denies any exception or
exemption that may be available to a manufacturer under other
provisions of the sales tax statutes or rules of the tax
A steel manufacturer galvanizes its flat roll steel to provide
its customers with a corrosion resistant product. Through
electrolysis and a recirculating zinc solution, zinc is
chemically bonded to the steel. Recirculation of the zinc
solution involves an intricately-woven system of fibrecast
pipes, pumps, dissolution tanks, and electrolytic
recirculating tanks, all of which are controlled by
computers. As with many other types of manufacturing-related
equipment, the size, weight, and configuration of these items
require special foundations and supports. The entire system
provides the necessary recipe and volume of solution for
precise applications of zinc in a high velocity rolling mill.
* The zinc solution is a raw material which becomes a
component of the completed product.
* The solution in which the zinc is dissolved is a consumable
that interacts with the product and is not taxable.
* The piping system, dissolution tank, pumps, and
electrolytic holding tanks are all used in a continuous
manufacturing operation and are not taxable.
* The computers are used to control production machinery and
in-process materials handling. The foundations and structural
supports similarly are used in connection with production
machinery. Therefore, these items are all not taxable.
A manufacturer of concrete owns a ready-mix batch plant.
Cement and aggregate are purchased from and delivered by
outside suppliers. Cement is removed from delivery trailers
by a vacuum system, which deposits the cement in a storage
silo. Aggregate of particular sizes is delivered by dump
trucks. The aggregate is stored in piles, segregated by size.
As needed, cement is removed from the silo by screw conveyor
and batched into a mixing drum. Aggregate is moved from the
proper pile(s) by a front loader, which deposits the
aggregate on a belt conveyor which lifts the stone up and
into the mixing drum. Water is added into the drum and mixing
commences. After a short time, concrete is discharged into
mixer trucks. The mixing drums on the trucks operate via
power take off from the truck engines. The concrete continues
to be mixed as the trucks deliver it to the customer. One
hundred per cent of this batch plant's output is sold to
others by the manufacturer.
* The cement and water are committed to the manufacturing
operation at the mixing drum. The cement vacuum system,
storage silo, and screw conveyor are taxable.
* The aggregate is committed to the manufacturing operation
when materials handling (via the front loader) from initial
storage ceases and the aggregate is deposited on the conveyor
which deposits it into the mixing drum.
* The aggregate conveyor and mixing drum are not taxable.
* The manufacturing operation continues in the mixer truck
and is not completed until the concrete is discharged from
the truck's mixer. Because the truck's mixer operates by
power take off from the truck engine, the entire vehicle is
production machinery and is not taxable.
A secondary smelter of aluminum uses a scale as part of an
automated process which measures out quantities of purchased
aluminum scrap for use in the casting process in the foundry.
The aluminum is delivered to the scale by a crane which
removes the material from storage and puts it into a hopper
which feeds the scale.
* The aluminum scrap is a purchased material, not scrap which
is generated at this manufacturing facility; therefore, the
equipment for its storage and handling are taxable. This
includes whatever storage facility is set up for it and the
* Because the raw material is committed to the manufacturing
process at the hopper, neither the hopper nor the scale is
An oil refinery obtains supplies of raw crude from numerous
sources. It stores this crude in various tanks, withdrawing
samples from each so that, in a laboratory in another part of
the plant, it can conduct tests to determine the composition
of each lot. Subsequently, various crude is metered and piped
to another tank for blending to meet process specifications.
Thereafter, the blended crude is desalted to remove
impurities such as bottom sediments and water, and then is
pumped to a preheat furnace to commence the distillation
* The storage tanks in which the raw crude is placed upon
receipt are taxable. The fact that the tanks store the crude
while laboratory tests are being conducted upon the samples
makes no difference to the status of these tanks.
* The meters and piping used to transport the raw crude to
the blending tank are not taxable from the point of metering.
The crude is committed to the manufacturing process when it
is metered after initial storage.
* The equipment used to blend the crude is not taxable as the
crude has been committed to the manufacturing process.
* The storage and handling equipment used after the blending
tank is not taxable.
* The desalting equipment and preheat furnace treat the crude
in preparation for the manufacturing operation after is has
been committed to the process and are thus not taxable.
* The equipment used to test the raw crude is not taxable.
A cement manufacturer purchases limestone which is stored in
piles at its facility. Prior to committing the limestone to
the process, the manufacturer periodically hoses down the
limestone to keep down the dust.
* This activity does not constitute refining. Consequently,
the hose and other equipment used to hose down the pile would
A manufacturer makes roofing shingles. It first makes a paper
felt. This is passed through a saturator tank which contains
asphalt that has been heated with steam to a very high
temperature. This saturates the felt with the asphalt. The
saturated felt is coated with granite dust; colored granules
are then applied to one side and talc to the other. The
material is then cooled and either cut to size or rolled up
The colored granules are placed in storage when they are
purchased. When they are to be used, they are transported to
the blending box, where different colors are mixed together
and applied to the roofing material. The purchased talc is
also placed in a storage tank and then is transported to the
manufacturing line by a series of pneumatic handling devices,
which deposit it into a hopper over the production line. It
then falls onto the shingle material passing underneath the
* The storage facilities for the granules and talc are
taxable as they are storing raw materials which will be
incorporated into the product.
* The handling devices for both the granules and talc are
also taxable as they are handling raw materials from their
initial storage and before they are committed to the
* The blending box is the point at which the processing
involving the colored granules begins, as the granules are
mixed and applied to the roofing material at that point. It
is therefore not taxable.
* The talc hopper is also not taxable as it is the point
where handling from initial storage has ceased and the
material is committed to the manufacturing process.
A paper manufacturer makes special paper for use in full
color photocopying. The process to apply the paper coating
must be done in a dust and pollution free environment. Rolls
of paper are passed through a machine where the coating is
applied and dried. This process occurs in a clean room, which
is separated from the rest of the plant by airtight
partitions and ceiling coated with an easily cleaned plastic.
Three of the walls and the ceiling are free standing and not
part of the walls and ceiling of the building itself; the
fourth wall, however, is a section of a wall of the larger
structure. Employees can only enter the clean room through
two airlocks, which prevent dirty air from entering. All air
is filtered and regulated as to temperature and humidity by
heat pumps, electric heaters, dehumidifiers, and exhaust fans
that serve only the clean room and maintain a positive air
pressure in the room. This equipment is automatically
controlled by a small computer using data from air monitoring
sensors in the room. Employees must wear disposable paper
coveralls, overshoes, and caps. The room has an intercom to
minimize personnel traffic in and out of the room. Lighting
in the room is by normal fluorescent fixtures attached to the
* The paper coater is production machinery and is not
* The clean room, including the heaters, heat pumps, light
fixtures, etc., remains tangible personal property, since its
special use primarily serves the business rather than the
* Since the clean room provides environmental regulation in a
special and limited area, and such regulation is essential
for the manufacturing to occur, it is not taxable. This
includes the partitions and ceiling, airlocks, heat pumps,
heaters, dehumidifiers, exhaust fans, ductwork, air monitors,
lights, regulating computer, and the special clothing used by
the workers to prevent product contamination within the room.
* The intercom is taxable.
In manufacturing glassware, molten glass is dropped into
molds in a forming machine, where it is spun into the desired
form. The formed glassware is released from the molds onto a
conveyor where it gradually cools. The conveyor enters and
annealing lehr which tempers the glass. From annealing, the
glassware moves on a long conveyor which again allows it to
cool. The glassware is then sprayed with silicone which makes
it scratch resistant.
* The manufacturing operation ends with the silicon sprayer.
A manufacturer purchases castings which will be a component
part of the manufacturer's product. The castings are received
on trucks in metal boxes on pallets. The pallets are unloaded
by forklift and placed in racks in the receiving area of the
warehouse. As they are needed, a pallet is removed from
storage by a different forklift and moved to a cleaning
process. A worker removes the castings from the box by hand,
placing them in a wire basket that is attached to a
counterweighted arm which allows the worker to lower the
basket into a tank containing chemicals which remove dirt,
grease, and similar contaminants. After dipping, the worker,
who wears rubber gloves to protect her hands from the strong
chemicals, places the castings on a conveyor which moves them
to a grinding operation.
* The holding of the castings after receipt is initial
storage. Both forklifts and the storage racks are taxable.
* The castings have been committed to the manufacturing
operation when deposited by the second forklift at the
washing operation. The chemicals, dip tank, basket, and arm
are not taxable, since they treat a component part after
materials handling from initial storage has ended.
* The conveyor that moves the castings to the first
production machine (the grinder) is not taxable because the
continuous manufacturing operation began at the dip tank.
* The rubber gloves used to protect the worker are taxable.
A manufacturer of clay pipe uses forklift tractors to
transport the pipe from the machine in which it is formed to
* The forklift tractors are used to handle an in-process
product and are are not taxable.
A petroleum refinery produces an intermediate feed, such as
naphtha, which is temporarily stored. It eventually will be
further processed into a completed product which will be
* The equipment used to transport the feed to and from the
storage tank, as well as the storage tank, are used to handle
an in-process material and are not taxable.
Water purchased from a public utility is used by a refiner to
quench (cool) a gaseous product stream flowing from a
distillation tower so as to lower its temperature or convert
it to a liquid for further processing. Since the water does
not touch the product directly, it does not need any
treatment to make it suitable for use in the manufacturing
* The water is used in the manufacturing operation. Any
equipment used to handle it from the point where it enters
the manufacturing facility is not taxable. Any piping from
the utility supply line is therefore not taxable.
A steel fabricator purchases coil steel. After the steel is
committed to the manufacturing operation, it is dipped in
solvent to remove dirt, oil, and grease. It is then further
cleaned by dipping in an acid bath. After fabrication is
completed, the steel is sprayed with oil to prevent formation
of rust on the surface of the product. After the oil spray,
the steel is transported to the truck dock for loading and
* The solvent and acid are consumables used to prepare the
product during the manufacturing operation and are not
* The spraying of the protective oil on the completed product
constitutes the end of the manufacturing operation.
* The oil is a consumable which interacts with the product
and is therefore not taxable.
A catalyst is used by a chemical manufacturer to facilitate
or cause a reaction between other chemicals during the
* The catalyst interacts with the product, is an integral
part of the manufacturing operation, and is therefore not
At a motor vehicle assembly plant, the manufacturer uses a
bar code system to track the flow of components. As
components are received from other manufacturing facilities
or outside suppliers, a bar code label is attached and then
scanned with a wand to record it in the plant mainframe
computer, along with pertinent data keyed in by the employee
to identify the part. This computer is also used for various
administrative functions. It does not control the assembly
line. Particular components are assigned to particular
vehicles, in order to assemble vehicles conforming to those
ordered by dealers, etc. After the vehicle is fully
assembled, an employee scans all labels. A printout is made
that permits a comparison between what components were
supposed to be included in each vehicle and which components
actually were assembled. The label on the emissions equipment
is also scanned prior to emissions testing, in order to
record the component in the emissions test data base.
Purchases include labels, label printers, scanners, printers,
computer terminals, and equipment to interface with the plant
* This bar code system is primarily used to monitor the
progress of the product in the continuous manufacturing
operation. The labels and scanning wands are not taxable,
except for first scanner and the scanner used prior to
emissions testing. The first scanner is used to record a part
in inventory and is therefore taxable. The scanner prior to
emissions testing is taxable because the vehicle is completed
before it is used. The scanner is not testing equipment.
* Since the bar code labels are used in the manufacturing
operation, the label printers are not taxable.
* The computer terminals allow employees to monitor the
progress of the scanned parts and are not taxable.
* The equipment that interfaces with the mainframe computer
is taxable. The computer printers, similarly, produce records
of the information and are taxable.
The functioning of the melt furnace in a glass manufacturing
facility is monitored and controlled from an operator's
booth, which is on a raised platform about fifty feet from
the furnace. Heat sensors in the furnace are wired to the
control booth, where the temperature data is drawn on a
continuous graph. The operator watches the graph and can
adjust the furnace by altering the flow of fuel (natural gas)
or oxygen, batch material proportions, or by adjusting the
flue in the furnace stack.
* The sensors in the furnace monitor production and are not
* The control booth and the equipment and controls in it are
* The temperature graphing device which records the
temperature data is taxable since it functions as a
* The platform that supports the control booth is not
taxable, since it supports the operator of production
* The furnace stack and flue assembly within the stack are
not taxable, since they provide regulation of the furnace
A manufacturer of high technology electronic equipment
provides its workers with microscopes which enable them to
manipulate the components as they are assembled into the
* The microscopes are not taxable because they are necessary
for the continuation of the manufacturing operation.
A castings manufacturer upgrades its foundry by installing a
new computer controlled mold maker and an automatic caster.
Because of their size and weight, both machines require
special concrete foundations. Casting sand is blended to
proper consistency with water and certain chemicals in a
muller. An auger moves the sand to a feed bin attached to the
mold maker. Molds are made automatically in accordance with
computer instructions. The instructions for each job are
developed in the engineering shop using a microcomputer and
software which was purchased from the manufacturer of the
mold making equipment. The instructions are placed on a
computer disk which an employee carries to the computer that
controls the mold maker. The completed molds leave the molder
on a conveyor which moves them to the caster.
* The mold maker and its foundation are not taxable, since
the molds are used in manufacturing the product for sale. The
nontaxable equipment includes everything from the sand muller
to the exit of the molds from the mold maker.
* The computer that controls the molder is not taxable.
* The purchased software and the computer in the engineering
shop are taxable, since they do not actually control the
* The conveyor that moves the molds from the mold making
process is taxable, since the molds do not enter the
manufacturing operation until they reach the caster.
* The caster is production machinery. The caster and its
foundation are not taxable.
A paint manufacturer makes paint pursuant to customer
specifications. After a batch is finished, a sample is ladled
into a quart jar and taken to the lab for testing to assure
adherence to the customer's specs. In the lab, twenty cubic
centimeters are placed in a beaker which is then placed in a
centrifuge. After centrifuging, the separated components of
the paint are examined under a microscope for content. The
test results are manually entered into a computer. The
computer generates a printed report and a label, both listing
the test results and other information about the particular
paint batch, e.g., name of customer and date of manufacture.
The label is attached to the quart jar which contains the
remainder of the paint sample. The jar is placed in a storage
cabinet where it is retained for five years.
* The testing procedure assures the quality of the completed
product and the equipment which is used in conducting the
testing is not taxable. This includes the centrifuge, beaker,
* The ladle, quart jar, and the storage cabinet are not used
in testing nor in any other aspect of the manufacturing
operation and are taxable. In addition, the quart jar and
storage cabinet are used primarily in a function related to
storage, record-keeping, and therefore are taxable.
* The computer, computer printer, and jar label are used only
to record the test results and are taxable.
A manufacturer operates a job shop foundry where it melts
ingots of raw pot metal in an electric furnace. The molten
metal is poured into jacketed molds, through which water is
circulated to speed up the cooling and solidification of the
metal. The water is pumped from a tank, chemically treated,
and conveyed by pipes to the molds. The heated water is
filtered and pumped from the molds to an outside cooling
tower and then returned to the same tank. Make-up water is
pumped from a well on premises into the tank. The treatment
chemicals are stored in liquid form in a tank, from which
they are pumped and metered.
* The furnace and molds are part of the continuous
manufacturing operation and are not taxable.
* The water is an energy transmitting substance since it
removes heat from the manufacturing operation. The water
treatment chemicals, water pumps, pipes, well and cooling
tower are not taxable. Since the water tank is part of the
recirculation system, it also is not taxable.
* The chemical storage tank, meter, and pump are taxable,
since they are merely storing or handling consumables prior
to their initial use in the manufacturing operation.
* Since the trucks are registered for highway use, they are
A large manufacturing facility is located on three hundred
fifty acres of land on the outskirts of a large metropolitan
area. The production machinery and equipment is spread over
several miles. The plant property is divided at various
points by a river, a railroad, and a public highway. Work in
process is moved from one production phase to another by
large licensed trailer trucks. A private bridge was
constructed to cross the river, a tunnel was constructed
under the railroad, and the trucks cross the public highway.
* This property is contiguous since the separations are only
public or private rights of way and not land used for other
public or private interests.
* Since the trucks are registered for highway operation, they
A plastics manufacturer uses injection molds to form the
product. Excess plastic trim is knocked off the molds and
collected on a conveyor. The conveyor moves the trim to a
grinder where it is reduced in size. Another conveyor moves
the plastic to a regrind bin where it is stored until needed.
The reground trim is manually removed from the storage bin in
hoppers and added, in certain proportions, to the purchased
plastic pellets in the feed bins for the mold injection
* Since the trim is recycled back into the manufacturing
operation, the entire process of collecting, transporting,
regrinding, and reintroducing the trim is part of the
manufacturing operation and not taxable. The regrind storage
bin is holding in-process product between stages of
production and is not taxable.
A steel manufacturer operates two plants. Plant A produces
basic steel in a BOF furnace and has bar and hot rolled strip
steel producing lines. Plant B, located several miles away,
produces cold rolled strip coils. All production lines
produce steel scrap in the form of trimmings or defective
product. At plant A, scrap from both lines is chopped to size
and taken to a storage area. When needed it is added back to
the furnace to be again used in steel production. The scrap
from plant B is chopped to size and taken to plant A where it
also is used to make new steel.
* Since plants A and B are not contiguous, they are separate
* Since the scrap at plant A is returned to the furnace, all
items of property used to handle and store the scrap are not
* The equipment used to handle and transport scrap produced
at plant B is taxable since the scrap is transported to plant
A for reuse.
* Since the choppers at both plants change the form of the
scrap, they are not taxable.
During paper manufacturing, the fibers that will comprise the
finished paper product are put into a water solution. The
water is drawn by an intake pipe and pump from a river that
flows next to the manufacturing facility. The water is
filtered and chemically treated and pumped into the
hydropulper where it is combined with wood chips and other
fiber source material. The resulting slurry is pumped to a
fourdrinier which removes most of the water by means of
vacuum pumps. The water so removed, as well as slurry that
otherwise escapes the process is collected, since it contains
usable fibers. This slurry is returned to the hydropulper by
pumps and pipes.
* The water is a consumable that is used in the manufacturing
operation. The river intake, pumps, filter, and chemicals are
not taxable since they either treat the water or transport
the water from the point of extraction at the river.
* The hydropulper and fourdrinier are production machinery
and not taxable.
* The slurry recovery and recirculating is part of the
manufacturing operation, since it recycles the product back
into the manufacturing operation at the same manufacturing
facility. The pumps and piping are not taxable.
A plastics manufacturer generates steam in coal-fired
boilers. Eighty-five per cent of the steam is used to heat
reactor tanks, in which the first step in the manufacturing
operation takes place. An insulated steam line carries the
steam from the boiler to the reactor vessels. Fifteen per
cent of the steam is diverted from the main steam line to
heat the buildings in the manufacturing facility.
The coal purchased to fire the boilers is received at a river
dock. The coal is unloaded from barges by a crane and is
moved from the dock by a conveyor belt to a conical storage
tower. As needed, the coal is pushed by a small bulldozer
into a feed bin, which dumps the coal onto another conveyor
belt which moves it to a coal pulverizer. A screw conveyor
moves the pulverized coal from the pulverizer to a storage
bin. Another screw conveyor removes the pulverized coal from
the bin and a forced air system injects it into the boiler
combustion chamber. The rate of injection is computer
Water for the boiler is pumped from the river, filtered,
chemically treated, and stored in a water tank outside the
boiler building. As the water is pumped from the storage
tank, additional chemicals are added. Both the water and the
air used to inject the pulverized coal are preheated by means
of a heat exchanger in the boiler exhaust stack.
* Eighty-five per cent of the coal and boiler water chemicals
are not taxable, since eighty-five per cent of the resulting
steam is used in the manufacturing operation.
* The boiler and main steam line, including the latter's
insulation, are not taxable, since a majority of the steam is
consumed in the manufacturing operation. The line which
carries steam for building heat is taxable.
* The coal unloading and handling equipment and the
pulverizer are not taxable. The conical storage tower and the
pulverized coal bin are taxable, since they merely store the
* The forced air pulverized coal injection system is not
* The river water inlet, pumps, lines, filters, and treatment
chemicals are not taxable. The water storage tank is taxable.
* The boiler exhaust heat exchanger is not taxable.
* The computer that controls the pulverized coal injection is
A manufacturer of ready-mix concrete uses a steam generator
to heat water which is used in mixing and warming component
materials in the manufacture of ready-mix concrete. The
concrete is sold to construction contractors and other
* The water is not taxable, as it transmits heat used in the
manufacturing operation and becomes part of the product
produced for sale.
* The generator is not taxable as it makes the water suitable
for use in the manufacturing operation.
A manufacturer of extruded rubber products uses injection
molding machines to force rubber through dies in order to
form the desired shapes. The molding machines are operated by
compressed air. The air compressor is fed air from an air
dryer. The dryer is necessary to keep moisture out of the air
compressor lines and production machinery.
* The injection molding machines are not taxable as they are
production machinery which act upon the product.
* The air dryer and compressor are not taxable because they
make the air used to power the molding machines suitable for
use in that function.
A steel manufacturer uses coke in the production of iron.
Coke is a fuel which provides some of the heat required for
smelting and it is also the source of carbon, a necessary
ingredient in the manufacture of steel, which dissolves into
the hot metal.
Coke is manufactured from metallurgical grade coal in a coke
plant. The coal is crushed, blended (high and low volatile
coals are mixed) and transferred to the ovens by means of
conveyor systems. The crushed, blended coal is placed in a
larry car which runs across the top of the coke ovens and
charges the coal into the ovens. The coke battery consists of
a series of ovens lined with refractory brick which bake the
coal to produce coke. The coke battery is built from the
ground up and does not have a separate foundation.
* The coke battery and the coal crushing, blending, and
charging systems, and larry cars are not taxable.
A manufacturer buys a new coal pulverizer. The coal is fed to
a boiler to produce steam to generate electricity to power
equipment used to manufacture products.
* The pulverizer is used to make the coal suitable for use in
the manufacturing operation and is not taxable.
A boiler is used to produce steam which primarily operates
machinery and equipment used in the manufacturing operation.
Other equipment feeds water into the boiler. This includes
items such as pumps and a piping system. There is also a
system which filters and treats raw water drawn from a creek
running through the manufacturing facility.
* The boiler is used to produce power for the manufacturing
operation and is therefore not taxable.
* The water is used to transmit energy to the manufacturing
operation and is not taxable.
* The piping, pumps, filters, and water treatment equipment
are not taxable.
A manufacturer installs an electrical distribution system,
including generators, transformers, electrical switchgear,
cable and related equipment. The electricity is used solely
to produce and supply electricity to the manufacturing
* The entire electrical generation and distribution system is
A manufacturer of specialty coil steel products uses natural
gas to heat annealing furnaces. The furnaces heat treat the
manufacturer's product and are part of the continuous
manufacturing operation. In a field owned by the manufacturer
and adjacent to the plant, the manufacturer drills two
natural gas wells, using a drilling rig, trencher, and
various other tools, and installs drips, pumps, and
transmission lines to provide gas for these furnaces. The
manufacturer also installs a gas line connected to the local
utility company line through which purchased gas is piped for
heating the buildings in the manufacturing facility. A branch
line connects this purchased gas line to the line going from
the wells to the annealing furnaces, in order to supplement,
if necessary, the gas produced from the wells. One hundred
per cent of the well-produced gas is burned in the annealing
furnaces. No more than twenty per cent of the purchased gas
is burned in the furnaces.
* The line connected to the utility's line is incorporated
into the real estate, since it primarily carries gas to heat
the buildings. The wells, pumps, transmission lines and
associated equipment, and the branch line remain personalty,
since they carry gas for use in the manufacturing operation
* The wells, pumps, transmission lines and associated
equipment, and the branch line are part of the manufacturing
operation and are not taxable since they are extracting and
transporting fuel used in the manufacturing operation.
* The material for the line connected to the utility's line
* The drilling rig, trencher, and other tools used to install
the well and gas lines are taxable.
A manufacturer purchases pumping and filtering equipment and
related tanks and tubing to supply lubricating and coolant
fluids to drilling and cutting machinery. This equipment is
used to recirculate the fluids so that they may be reused in
the manufacturing operation.
* As the fluids are being treated for reuse in the
manufacturing operation, the equipment which moves and treats
the fluid is not taxable.
A manufacturing operation uses water as a coolant in its
production operation. The water is continuously recirculated
in a closed system. The recirculation system includes a
cooling tower and related pumps and piping.
* As the water is a substance used in the manufacturing
operation, the recirculation system equipment is not taxable.
The production of flat roll metal products requires that an
oil mixture, which serves as both a rolling lubricant and a
coolant, be continuously sprayed on sheets in the rolling
mill. Spent oil is simultaneously removed and passed through
a filtering process which is interconnected with the rolling
mill, after which the oil is resprayed onto the sheets.
* The rolling mill is a production machine and is not
* The oil filtration machinery treats the oil for reuse;
therefore, this equipment is not taxable.
A manufacturer of truck and tractor engines uses what are
known as wet machines in its engine head and block assembly
lines. These machines require the presence of a liquid
coolant to operate. In the absence of such a coolant the
machines would heat up rapidly, ultimately destroying the
tool and the part being machined. Therefore, the interface
between the tool and the block or head is flooded by spraying
it with liquid coolant, a water soluble oil.
In order to save on the expense of the oil, the manufacturer
devised a system to recapture the used liquid. After the
coolant is sprayed on the component, it drops through a
funnel-like chamber into an underground trough. The coolant
collects in a u-shaped channel along with the scrap metal
chips and dust produced by the machining operations. The
coolant is conveyed through the underground trough by means
of air pressure to a collecting tank outside the plant where
a conveyor lifts the bigger chips from the coolant. These
chips then enter a chipwringer which wrings out excess
coolant. From the tank, the coolant is pumped back into the
plant through a series of pipes. Along the way, it passes
through a series of filters which removes any remaining metal
particles. Thereafter the coolant is returned to the
machining lines where the process begins anew.
* The entire recirculating system is not taxable. The oil is
used in the manufacture of the engine heads and blocks. The
recirculating system is used to filter this oil to make it
reusable for the manufacturing operation. The substances are
in fact intended for reuse and not for disposal or sale.
A producer of alloy steel uses an acid solution to pickle its
products. The pickling process removes scale. After pickling,
the used acid is filtered to remove impurities. The filtered
solution is then pumped into a tank where pure acid is added
to the solution in order to raise the acid content. From this
tank, the solution is pumped and piped into the pickling
tanks. After the acid is reused a certain number of times it
can no longer be purified and strengthened sufficiently to be
economically useful. It is therefore transported through a
series of pipes to an acid disposal plant, where the acid is
neutralized by mixing it with lime in a tank designated the
neutralizing tank. The mixture is then pumped into a sludge
* The acid solution would not be taxable as it interacts with
the product. The pickling tanks are production machinery and
thus also not taxable.
* The pipes from the pickling tanks through the filtration
system are not taxable, as this is a treatment system which
makes a substance used in the manufacturing operation
reusable, and the substance is in fact intended for reuse.
* The piping system used to transport the spent acid to the
acid disposal plant, the pump into the neutralizing tank, the
tank itself, the lime, and the pumps and pipes used to
dispose of the neutralized solution are taxable under this
rule as at this point the substance is not intended for
An automobile manufacturer has a plant which stamps out steel
to make automobile body parts. The manufacturer employs an
engineering firm to procure and generally oversee the
installation of a cold press machine which presses sheet
metal into doors. The engineering firm contracts out the
labor for installation of the piece of production machinery
in the manufacturer's plant. The contractor which installs
the machine bills the manufacturer directly.
* The charges from the contractor for the services to install
the machine are not taxable as they involve the installation
of an item used primarily in a manufacturing operation to
produce tangible personal property for sale.
A manufacturer builds and furnishes a new administration
building. The building contains offices for executives and
the personnel and accounting department. The manufacturer
leases a computer to process personnel, payroll, accounting,
and billing information.
* All office equipment and furnishings located in the
administration building are taxable.
* The computer is taxable.
A food processor has an automated batch system for dry
ingredients. The ingredients are received from outside
suppliers on pallets in bags, cartons, paper drums, etc. They
are moved from the receiving warehouse area by forklift,
which deposits the pallets near the dry batch mixer. Some
ingredients are dumped by employees directly into the mixer.
Some are dumped into feed bins which discharge directly onto
a scale. The proper amount of ingredient per batch is
programmed into the scale by an employee. The scale controls
the feed bins, opening them in turn and shutting them when
the proper weight is reached. The dry ingredients are mixed
and discharged by a covered conveyor to the next stage, where
water is added.
* The dry ingredients do not undergo a change in state or
form until mixed with water; however, the manufacturing
operation begins as to the dry ingredients when they are
dumped into the feed bins or directly into the dry batch
mixer, since they have been committed to the manufacturing
operation when the materials handling (via the forklift) from
the warehouse ceases. Thus, the bins, mixer, and scale are
* The forklift is taxable.
A manufacturer uses a forklift primarily to move finished
goods from a storage warehouse and load them on trucks for
shipment to customers.
* The tangible personal property in the warehouse and the
forklift are taxable, since they are storing or handling a
A manufacturer purchases storage equipment for the purpose of
storing raw materials prior to commitment to the
manufacturing operation includes tanks, racks, holding bins,
and similar equipment.
* Such storage equipment is subject to tax.
A fiberglass manufacturer generates fiberglass waste as part
of its manufacturing process. The waste is collected in
various ways, including a vacuum system with collection hoses
that permit workers to clean up small particles. The vacuum
system deposits the fiberglass into a holding bin. Larger
pieces, including rejected material that fails quality
assurance testing, is transported in skid boxes by lift
truck. All waste fiberglass is baled and transported by the
manufacturer's trucks to a landfill for disposal. All
employees in the plant are required to wear masks to prevent
them from inhaling glass fibers.
* Since the waste fiberglass is not sold or recycled by the
manufacturer, the baler and all of the handling equipment,
including the vacuum system, is taxable.
* The protective masks worn by the employees are taxable.
Replacement parts for production machinery are kept in
storage bins in the plant storeroom.
* While the parts are not taxable, the storage bins are
A manufacturer has its employee parking lot repaved. It
separately purchases the required materials and contracts the
* The materials incorporated into the parking lot are taxable
as the lot is real property. The labor is not taxable as it
pertains to an improvement to realty. Had the manufacturer
entered into an agreement whereby the contractor provided
both material and labor, there would be no direct tax
consequences to the manufacturer.
A manufacturer purchases a heating system and other related
parts to be incorporated into a manufacturing facility. The
heating system will provide heat and serve solely for the
* The heating system and all related parts purchased will be
taxable since it is used to produce heat for the building and
not used in any manufacturing operation.
A manufacturer of unassembled furniture has an extensive dust
collection system throughout the manufacturing facility.
Collecting units are located over the boring mills, saws,
edgebanders, planes, and other places in the plant. Fans and
ductwork exhaust the dusty air through a series of filters.
The saw dust falls from the filters into movable hoppers.
These hoppers are periodically dumped into a mixer, where the
saw dust is blended with a small amount of liquid adhesive.
The mixture is removed from the mixer by a screw conveyor to
a press which forms it into briquettes which the manufacturer
sells. The briquettes fall onto a conveyor belt which moves
through a heat tunnel which causes rapid drying.
* The entire dust collection system is taxable, since it
provides environmental control throughout the entire
* The portable dust hoppers are taxable, since they are
handling a waste product.
* The adhesive, mixer, screw conveyor, press, belt conveyor,
and heat tunnel are not taxable, since they are used to
manufacture a product for sale.
A manufacturer makes various kinds of candy canes. The
process requires that temperature and humidity in the plant
be maintained within certain narrow parameters.
* Since the temperature and humidity are regulated in the
plant as a whole, rather than a special, limited area within
the plant, all the equipment used to provide such regulation
A manufacturer of automotive parts paints the parts as part
of its manufacturing process. The painting is done in paint
booths, which are enclosures containing ventilation and other
equipment that provide the booth with a controlled atmosphere
so that paint is applied to each piece under nearly identical
conditions, resulting in a uniform product. The paint is
applied by a spraying system which results in a considerable
amount of overspray. To flush this excess paint from the
booth, a water spray flows through continuously. The water is
drained from the booth into a treatment system which filters
out the paint. Neither the paint nor the water is reusable in
the process, so they are disposed of in accordance with
pollution control regulations.
* The paint booth and its ventilation equipment are not
taxable since they regulate the environment in a special and
limited area of the manufacturing facility.
* The water spray equipment is also not taxable as it is
necessary for the continuation of the manufacturing
An automotive parts manufacturer is ordered by a federal
inspector to install guardrails along the sides of aisles
traveled by forklifts and a floor sweeper in order to provide
a barrier for the protection of employees operating nearby
machinery. The inspector also requires the installation of
flashing lights on the moving equipment. The forklifts are
primarily used to move in-process product.
* The guardrails are taxable.
* The forklifts themselves are not taxable since they are
used for materials handling during the continuous
manufacturing operation, so the flashing lights attached to
them are not taxable. The flashing lights attached to the
floor sweeper are taxable.
All of the manufacturer's employees must wear ear plugs,
safety glasses, hard hats, and steel toed shoes when in
production areas. Some employees must wear leather or rubber
gloves and aprons, depending on their jobs. The manufacturer
provides all of these protective articles to the employees
without charge, except eyeglasses and shoes. Employees must
provide their own eyeglasses. However, the manufacturer
usually buys, by special order, safety shoes for the
employees and sells them, with a minimum markup to cover
* All of these protective articles and clothing are used in
taxable functions. The manufacturer consumes everything
except the eyeglasses and shoes and must therefore pay tax on
its purchases of those items.
* Since the manufacturer is making retail sales of safety
shoes, it must have a vendor's license and collect sales tax
on such sales made to the employees.
* The employees must pay tax to the suppliers of their safety
A manufacturer produces electronic equipment. Its process
requires that static electricity be eliminated from the
environment. If it is not, the static will destroy the
electrical components. In order to ensure that the static
electricity is properly discharged, the manufacturer has its
production employees wear a wrist bracelet which attaches to
a grounded object. The manufacturer also requires that the
production employees wear contaminant-free overalls so that
the production area remains free of dirt.
* The wrist bracelets are not taxable since they are
equipment necessary to the production process.
* The overalls are taxable since they are clothing worn
throughout the plant instead of in a special and limited
portion of the manufacturing facility where the environment
is totally regulated.
A manufacturer has several safety concerns in the
manufacturing plant for which it has taken various measures.
It has attached guards to certain of the production machinery
to protect the workers from injury and placed safety signs at
various points throughout the plant. It also furnishes
clothing and other equipment to workers primarily for the
workers' safety and protection. Finally, the manufacturer
hangs fire extinguishers on walls throughout the plant.
* Machinery guards are attached to the production machinery
and are therefore not taxable.
* General safety items, unless actually attached to
production machinery, are taxable. Therefore, the safety
signs, clothing, and other equipment are taxable.
* The fire extinguishers are taxable.
A manufacturer of household products purchases a computer and
software for use in designing packaging for its products (a
"CAD" system). The CAD equipment allows the manufacturer's
design engineers to create and evaluate various package sizes
and shapes and the effects of using different package
materials. Similarly, the system can be used to design and
layout different labeling. A plotter prints out the designs
for review by management. When a new design is selected, the
system generates detailed drawings which are sent to package
manufacturers and printers who will produce the new items.
* The entire CAD system, including the software, is used in
research and development and is taxable.
A manufacturer installs probes on a grinding machine, in part
by using a special tool that was purchased for that purpose.
The grinder is production machinery. The probes measure
vibrations in the bearings of the machine while it is
operating. A chart recorder records the data from the probes.
When vibrations exceed a certain tolerance, new bearings are
ordered and installed, thus allowing the manufacturer to make
the repair in a controlled fashion and avoid extended
downtime and/or more extensive damage to the grinder.
* The probes are not taxable, since they monitor the
functioning of equipment used in the continuous manufacturing
* The chart recorder merely makes a record of the monitoring
and is taxable.
* The tool purchased to install the probes is taxable.
* The replacement bearings are not taxable, since they are
incorporated into equipment used in the manufacturing
A manufacturer shuts down a reactor, which is used in the
manufacturing operation, for routine maintenance. During
shutdown, a section of the reactor wall is cut out, removed
by crane, and a new section is welded in. Thereafter, the
reactor is cleaned and the lines are flushed in preparation
for start-up. All work is done by employees of the
* The labor performed to remove the old section, install the
new section, clean the reactor and flush the lines is not
* The new section of the reactor wall is not taxable as it is
part of a production machine.
* The welding torch, crane, equipment used to clean and flush
the reactor, and related consumables, such as acetylene and
cleaning compounds, are items used to clean, repair, install,
or maintain personal property in the manufacturing facility
and are therefore taxable.
A manufacturer purchases two trucks to move work in process
between buildings within the manufacturing facility. One
truck is not registered for highway use since it is used
solely on the manufacturer's private property. The second
truck is registered, since it must travel a short distance on
a public highway which passes through the manufacturing
* The unregistered truck is not taxable, since it is used in
materials handling of in-process product.
* The truck registered for highway operation is taxable.
A manufacturer of paper products uses an extremely large and
complex paper-making machine. The machine consists of many
parts and requires constant servicing. Some parts themselves
are massive and heavy. These parts must periodically be
removed and replaced.
The manufacturer uses what it calls the wet end crane to
lift, remove, and replace these heavy parts. The crane is
sixty feet above the plant floor and it traverses the entire
length of the paper-making machine by means of overhead
* The wet end crane is taxable as it is machinery used to
repair, install, or maintain real or personal property in the
Concrete pipe is made in a forming kiln. The formed pipe is
moved by lift truck to a steam room where it cures for one
day. The steam curing speeds up the necessary chemical
reaction to harden the pipe. Steam is produced by a propane
fueled boiler. The propane is stored in six tanks, with lines
going to a single vaporizer which converts the liquid into
gas. The concrete pipe is removed from the steam room to an
area where employees patch and smooth pits and flaws in the
pipe. The pipe is then moved to an outside storage area where
it remains for at least twenty days to allow final curing.
When sold, the pipe is loaded onto flatbed trailers by a yard
boom truck. Movement of the pipe in the facility is done by
three interchangeable lift trucks. The lift trucks are used
seventy-five per cent of the time moving the pipe to and from
the steam room, twenty per cent of the time moving from the
finishing area to the yard, and five per cent of the time in
miscellaneous activities. The lift trucks are battery powered
and share the use of a single battery charger.
* The propane, propane lines and vaporizer, boiler, and hand
tools used in finishing are not taxable. The propane storage
tanks are taxable.
* The lift trucks are primarily used for materials handling
as part of the continuous manufacturing operation. The lift
trucks and battery charger are not taxable.
* The boom truck is taxable.
A manufacturer produces bottle caps and furnace air filters
at its single facility. The bottle caps are die punched from
coils of sheet steel strip. The bottle caps are then passed
through an inspection device and any caps which are found
unacceptable are carried by a conveyor to a bin where they
are held for sale. Acceptable caps continue through
additional steps which include printing and the insertion of
a gasket. After the bottle caps are punched from the sheet
steel strip, the remaining perforated strip is recoiled and
moved by a lift truck to temporary storage racks, from which
point it is further trimmed to length during its assembly
into furnace air filters.
* This constitutes a single manufacturing operation that
produces two different products at the same manufacturing
* The punching, printing, and gasket insertion equipment are
all used in the production of the bottle caps and are
therefore not taxable.
* The recoiling equipment and trimming equipment are
production machines and not taxable.
* The device for inspecting the bottle caps is not taxable
since it is used for testing the product.
* The lift truck and storage racks are not taxable because
they handle or temporarily store in-process product.
A manufacturer purchases sheet metal for fabrication into
various products. After initial storage, the sheet metal is
transported to slitters by a propane powered lift truck. The
slitters cut the sheet metal to length, after which it is
transported to the stamping presses. As the steel goes
through the stamping process, excess metal in the form of
chips is produced. The metal chips are removed from the
stamping area through a chute and conveyor system which
transports the metal chips to a baler. The baler compresses
the chips into bales which are then sold to industrial
customers as scrap metal.
* The sheet metal is committed to the manufacturing operation
when deposited at the slitters by the lift truck. The lift
truck and the propane used to power it are taxable.
* The slitters and stamping presses are production machinery
and are not taxable.
* The metal chips are scrap. Since the scrap is sold, rather
than being reused in the manufacturing operation at the same
facility, the chutes and conveyors which handle the scrap
metal chips are taxable.
* Since the baler changes the form of the chips which are
intended to be sold, the baler is production machinery and
A meat processor makes sausage, wieners, salami, bologna, and
similar products. After grinding and mixing, the meat is
extruded into casings of various types and sizes. The meat is
then smoked and/or cooked. After cooking the casings are
removed and discarded.
* The casings are consumables that physically interact with
the product during the continuous manufacturing operation and
are not taxable.
A dairy purchases raw milk from farmers. The milk is picked
up by trucks owned by the dairy. Upon arrival at the dairy
facility, a pump removes the milk from the truck through a
pipe and pumps it into a clarifier, which is a centrifuge
that removes particle contaminants. From the clarifier, the
raw milk is pumped into a storage silo where it is held for
period of time. After the raw milk is removed from the silo,
it proceeds through various processes, including separation
(where cream is removed), blending (where cream is added back
to reach proper butterfat content), standardization (where
vitamin supplements are added), pasteurization, and
homogenization. After homogenization, the milk is pumped to
filling equipment which packages the milk in cartons or jugs.
* The trucks which deliver the milk from the farmers and the
pump which removes the milk from the trucks are taxable.
* The clarifier actively refines the raw milk by centrifuging
and is not taxable. The clarifier is the beginning of the
manufacturing operation and the raw material (milk) is
committed at that point.
* All equipment, pipes, pumps, and tanks (including the silo
holding the raw milk), which process, move, or temporarily
store the milk up to and including the homogenization
process, are part of the continuous manufacturing operation
and not taxable.
An ice cream manufacturer purchases cream, skim milk, sugar,
and various flavorings and additives. The cream and milk are
placed into refrigerated tanks when received. Any particular
flavoring is placed into one of several storage tanks. All of
these tanks are connected by piping to a mixing tank. In-line
meters control the amount of cream, milk, and flavoring
withdrawn from the tanks and batched in the mixing tank.
After mixing, the ice cream is packaged into cartons and
moved by conveyor through a freeze tunnel, where most of the
ice cream becomes solid. After the freeze tunnel, the
packaged product moves slowly through a hardening room on
roller conveyors. The hardening room is a large freezer where
the temperature is maintained at minus thirty degrees. The
solidification of the ice cream is completed in the hardening
room. On exit from the hardening room, the product is
shrink-wrapped in appropriate quantities (e.g., four half
gallons), palletized, and moved by lift truck into a large
freezer to await shipment.
The tanks, freezers, and some in-process piping is cooled by
a refrigeration system, which consists of compressors,
condensers, piping, and an in-line tank for the coolant.
Based upon an analysis of the refrigeration system piping
used in the various areas of the facility, it has been
determined that twenty per cent of the system is used to cool
the cream and milk tanks, ten per cent for the mixing tank,
in-process piping, and packaging operation, thirty per cent
for the freeze tunnel and hardening room, and forty per cent
for the freezer warehouse.
* The initial storage tanks for the cream, milk, and
flavorings are taxable.
* The milk, cream, and flavoring are committed to the
manufacturing operation at the point they are metered prior
to entering the mixing tank. The meters and subsequent piping
and the mixing tank are not taxable.
* The ice cream is not completed until it leaves the
hardening room. The freeze tunnel, hardening room, and roller
conveyors are not taxable.
* The forklift that moves the palletized product into the
freezer warehouse is taxable.
* The freezer warehouse is taxable, since it is storing a
* Sixty per cent of the coolant is taxable, since that is the
proportion of this fungible used in a taxable manner.
* The condensers, compressors, and tank for the refrigeration
system are taxable, since their quantified primary use (sixty
per cent) is taxable.
* Since the refrigeration system piping is essentially
identical, it is properly treated as fungible for sales tax
purposes and is sixty per cent taxable.
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5739.01, 5739.011, 5741.02
Prior effective dates: 10-29-77, 11-18-78