Chapter 5703-9 Sales and Use Tax

(A) A vendor engaged in making retail sales subject to the Sales Tax at a fixed place of business must obtain a license therefor and, in case such vendor makes retail sales from vehicles operated by his agents, such sales in the county in which the fixed place of business is located may be made under the license issued for the fixed place of business.

A license for a fixed place of business will not permit the vendor, or employees of the vendor, to operate vehicles in any other county in the State without securing additional licenses. A vendor who makes retail sales from vehicles in more than one county must obtain a license for each county in which he makes such sales.

A license obtained by a vendor for a fixed place of business does not cover retail sales of property purchased from the vendor having the license and resold from vehicles where the operators of such vehicles are not the agents of the vendor having the license but are making the sales for their own profit and in connection with their own business.

A person who does not have a stock of merchandise from which orders are filled, selling on a commission basis for a vendor who has a fixed place of business is not required to procure a vendor’s license as he is in fact the agent for the vendor with the license.

Persons selling on a straight commission basis, who sell from a stock of goods which they carry with them, are vendors and will be required to procure a vendor’s license and collect the tax in the regular manner.

(B) Vendors having no fixed place of business and selling from vehicles must procure a vendor’s license for each vehicle, which vehicle shall constitute his place of business. Such license shall cover all sales made from the one vehicle only in one county. If sales are made from the vehicle in more that one county, licenses shall be procured in each county in which sales are made. The application for each license must set forth a residence or permanent mailing address in the state to which all communications from the Department of Taxation may be sent. A change in this address must be reported promptly to the Department.

Vendors having no fixed place of business and not selling from a vehicle shall procure one license in each county in the state in which sales are made. The application for each license must set forth a residence or permanent mailing address in this state to which all communications from the Department of Taxation may be sent. A change in this address must be reported promptly to the Department.

(C) In those cases where an individual incorporates his business a new license will be required. Likewise, where a corporation is dissolved and is operated by a sole owner, a new license is required. In the case of a dissolution of a partnership by death, the surviving partner or partners may operate under the existing license for sixty days only, at the expiration of which time a new license must be procured for the operation of the business. Trustees in bankruptcy, legal representatives of deceased persons and receivers, when appointed by competent authority, may operate indefinitely under the existing license but must immediately notify the Department of Taxation of their appointment.

A vendor’s license shall terminate and be null and void if the business is moved to a new location or if the business is sold, or if an individual or partnership incorporates his or their business, or if a partnership is dissolved, or if a corporation dissolves.

Corporations upon making application for a vendor’s license must display their corporation charter number, as registered with the Secretary of State, immediately following their name on the application for license.

If the applicant for a vendor’s license is a holder of Liquor Permit issued by the Ohio Department of Liquor Control such vendor’s license must conform with Liquor Permit in name and address so as to establish the identity of the actual owner.

In the case of two or more persons constituting a single vendor who operates a single retail establishment under one license, the Department of Taxation must be promptly notified of the retirement of any such person from business in such establishment or the entrance of any person under an existing arrangement.

(D) Hotels, which includes all establishments having five or more rooms which are used or offered for use as sleeping accommodations for transient guests, must hold a vendor’s license for the location in which the business is conducted.

(E) No license need be procured by public and parochial schools where the only sales consist of serving meals in cafeterias amd selling school supplies to students, not as a business and at no profit.

HISTORY: (former TX-11-01); Eff 10-12-69; 9-28-76

Rule promulgated under: RC 5703.14

(A) Since all sales of tangible personal property in this State are presumed to be subject to Sales Tax until the contrary is established, the burden of proof rests upon each vendor to show what part, if any, of their gross receipts from sales resulted from nontaxable sales.

Each vendor must maintain complete and accurate records which include both:

(1) Primary records such as purchase invoices, bills of lading, sales invoices, guest checks, exemption certificates, tax payment receipts, and cash register tapes;

(2) Secondary records such as bank deposit receipts and day books, journals, or any other records in which accumulated data is recorded.

Any record in which accumulated data is recorded by the vendor must be supported by complete detail records from which such data was accumulated.

Sales invoices and cash register tapes for taxable sales must have separately stated thereon the total price and the tax amount charged, which amounts are to be accumulated and recorded in a secondary record. Invoices for lodging must also clearly show the length of stay, in terms of consecutive days for each guest.

All records must be preserved for a period of four years unless the Commissioner consents, in writing, to their destruction within that period or by order requires that they be kept for a longer period.

The tax collected by a vendor, as trustee for the State of Ohio, is a collection for the benefit of the State and no person other than the State shall derive any benefit from such collection other than that provided for in Revised Code 5739.12.

(B) If any vendor fails to maintain complete primary sales records which may be utilized in verifying the accuracy of the figures reflected in their secondary records and/or reported on their tax returns, the Commissioner will use one of the following methods for such verifications:

(1) Determine taxable and nontaxable sales and the tax due on sales subject to the bracket tax levied in Revised Code 5739.02, as provided for in Revised Code 5739.13.

(2) Determine “net receipts” as the basis for application of the four percent tax levied in Revised Code 5739.10.

“Net receipts” means the total amount of the prices of all sales less (a) the sale price of property returned by the consumers when the full price of tax has been refunded either in cash or by credit, (b) sales under sixteen cents, (c) and sales of food for human consumption off the premises where sold.

The above described determinations will be based upon (i) purchase records, (ii) a sampling of the vendor’s business activity for a representative period, and/or (iii) other information relating to the sales made by such vendor.

If any vendor fails to maintain complete secondary records reflecting the total amount of the prices of sales subject to tax and the tax due thereon which may be utilized in verifying the tax liability reported on their tax return, the Commissioner will verify the reported tax liability by use of a sample of the vendor’s business activity for a representative period. If this verification method reveals an error in the reported tax liability, the rate of tax as determined by the Commissioner will be deemed to be the rate of tax collection by such vendor and will be applied to the receipts from taxable sales made during the entire period of time under review.

HISTORY: (former TX-11-02); Eff 4-27-65; 9-1-67

Rule promulgated under: RC 5703.14

(A) As used in this rule, “exception” refers to transactions excluded from the definition of retail sale by division (E) of section 5739.01 of the Revised Code. “Exemption” refers to retail sales not subject to the tax pursuant to division (B) of section 5739.02 of the Revised Code.

(B) All sales are presumed to be taxable until the contrary is established. If a purchaser believes an exception or exemption is available, the purchaser must provide, electronically or in hard copy, a properly completed exemption certificate to the vendor or seller. Unless the vendor or seller fraudulently fails to collect the tax or solicits a purchaser to participate in an unlawful claim of exemption, the vendor or seller is relieved of the duty to collect sales tax on any sale covered by the certificate. However, the purchaser remains responsible for any tax found to be due.

(C) Pursuant to section 5739.031 of the Revised Code, no exemption certificate need be obtained by or furnished to a vendor or seller who receives and retains notice, from a purchaser who holds a direct payment permit that has not been canceled, of the purchaser’s direct payment permit number and that the tax is being paid directly to the state. While it is advisable to obtain an exemption certificate for the following types of transactions, it is not mandatory that a certificate be obtained when the identity of the consumer is such that the transaction is never subject to the tax imposed, when the item of tangible personal property or the service provided is never subject to the tax imposed, regardless of use, or when the sale is in interstate commerce.

(D)

(1) A unit exemption certificate should be used to cover a single purchase and must be maintained with the primary purchase record. The unit exemption certificate may be incorporated into a purchase order, invoice, or bill of sale.

(2) A blanket exemption certificate should be used to cover all purchases made on or after the effective date unless the purchaser specifies that a purchase is subject to the tax. Blanket certificates must be maintained in a separate exemption file or may be part of a customer file. The vendor or seller must charge tax when the purchaser indicates that a purchase is subject to the tax.

(E)

(1) If a vendor or seller is claiming the resale exception on the purchase of a motor vehicle, watercraft, or outboard motor, the vendor or seller may use the forms required to be prescribed by rule that are hereby prescribed for use as a unit exemption certificate or as a blanket exemption certificate. The forms may be obtained from the department of taxation and are available on the department’s web site. They may be reproduced as needed. Substitute exemption certificates may be developed and used as long as they contain the basic elements prescribed in paragraph (G) of this rule.

(2) If a vendor, seller, or consumer is purchasing a motor vehicle, a watercraft that is required to be titled, or an outboard motor that is required to be titled and is claiming exception or exemption from the sales and use tax based on a reason other than resale, the vendor, seller, or consumer must comply with provisions of rule 5703-9-10 or 5703-9-25 of the Administrative Code.

(3) If a construction contractor is claiming exemption from sales or use tax on the purchase of materials for incorporation into real property, the construction contractor must comply with the provisions of rule 5703-9-14 of the Administrative Code.

(F) To cover sales claimed to be excepted or exempted, an exemption certificate must be obtained by the date the sales are required to be reported by the vendor or seller.

(G) To be valid, exemption certificates must:

(1) Identify the vendor or seller,

(2) Reasonably apprise the tax commissioner of the statutory exception or exemption being claimed; and

(3) Be dated by, and if in hard copy signed by, the purchaser.

If any of these elements is missing, or if the reason for claiming exception or exemption is not based on statutory authority, the certificate is invalid.

(H) The following forms are incorporated in this rule by reference:

(1) The unit exemption certificate, revised March 15, 2004;

(2) The blanket exemption certificate, revised March 15, 2004.

HISTORY: Replaces rule 5703-9-03; Eff 10-5-76; 11-18-78; 7-2-81; 10-18-82; 7-13-92; 6-11-04

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05, 5739.03, 5741.02

Rule amplifies: RC 5739.01, 5739.02, 5739.03, 5741.02

R.C. 119.032 review dates: Exempt

(A) A vendor, wholesaler, lessor, manufacturer, or other person who removes tangible personal property from inventory which had been purchased by the person without payment of sales or use tax on the basis that the personal property was intended to be resold pursuant to division (E)(1) of section 5739.01 of the Revised Code, and temporarily or permanently stores, uses, or otherwise consumes such personal property in a taxable manner inconsistent with such claim of exception, shall accrue and pay use tax on the price of the personal property, as defined in division (G) of section 5741.01 of the Revised Code.

(B) A manufacturer who produces tangible personal property which he has manufactured from raw materials or component parts purchased without payment of sales or use tax on the basis that the raw materials or parts were intended to be incorporated into a product for sale pursuant to division (E)(2) of section 5739.01 of the Revised Code, and who temporarily or permanently stores, uses, or otherwise consumes such personal property in a taxable manner inconsistent with such claim of exception, shall accrue and pay use tax on the price of such personal property, as defined in division (G) of section 5741.01 of the Revised Code and in accordance with paragraph (A) of rule 5703-9-21 of the Administrative Code.

HISTORY: Replaces rule 5703-9-04; Eff 1-1-62; 7-13-92

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: RC 5739.01, 5741.01, 5741.02, 5741.12

(A) A transaction in which “tangible personal property is or is to be stored” under division (B)(8) of section 5739.01 of the Revised Code means transactions involving any keeping or holding of another’s tangible personal property or any provision of space that is used to store another’s tangible personal property.

(B) In a transaction in which “tangible personal property is or is to be stored” pursuant to division (B)(8) of section 5739.01 of the Revised Code, it is not relevant whether the storage of the tangible personal property is at a location that constitutes personal property or real property. The tax must be charged on the full fee or charge for the transaction. Accordingly, the tax imposed under that division is not subject to division (A)(2) of section 5739.02 of the Revised Code, or division (A)(2) of section 5741.02 of the Revised Code.

(C) Transactions are taxable when payment, relating to storage on or after August 1, 2003, is made on or after August 1, 2003.

(D) “Tangible personal property is or is to be stored” includes, but is not limited to, the following and similar transactions related to:

(1) Except as provided in paragraph (E) of this rule, the holding of tangible personal property for the consumer for which there is a charge;

(2) The short-term or long-term holding of clothing for a consumer in a vault or other facility;

(3) Any other bailment of personal property for which a fee is charged;

(4) The provision of a locker, self-storage unit, building, or other property, both real and personal, for the lessee’s or renter’s use in storing tangible personal property;

(5) The provision of dry-dockage or of out-of-water storage for watercraft;

(6) The provision of safe deposit boxes;

(7) Except for parking as provided in paragraph (E)(2) of this rule, the holding of, or provision of space to keep a motor vehicle: or

(8) Airplane storage. “Airplane storage” is an aircraft at rest, either in a hangar or by tie-downs, during which the engine of the aircraft is not maintained in an active or operational condition pursuant to the directives found in the Pilot’s Operating Handbook for the aircraft.

(E) “Tangible personal property is or is to be stored” does not include the following and similar transactions related to:

(1) Transactions where the tangible personal property being stored by or for the consumer is held by the consumer for sale in the regular course of the consumer’s business, including raw materials and works-in-progress;

(2) Parking provided as an adjunct to residential accommodations and parking in a public or private commercial facility or lot, used for the parking of vehicles. Parking of vehicles is to be distinguished from the storage of vehicles. Examples of parking would include parking at an airport and parking in a parking lot where the fee is paid on a monthly basis. An example of storage would include the storing of a collectible automobile that is occasionally removed and returned;

(3) The in-water moorage of watercraft at a dock or pier;

(4) The kenneling or boarding of an animal where the true object of such service involves animal care that includes additional services such as the care and feeding of the animal and the charges for such additional services are not separately stated; The provision of private mail boxes; or

(5) The provision of private mail boxes; or

(6) Bailments where no fee is imposed as a condition of the bailment, even if tipping is permitted.

(F)

(1) Determination of the tax due on currency or coin-operated storage modules, such as coin-operated lockers, shall be made either by using the pre-determined method provided in this paragraph or by a method approved by the tax commissioner under section 5739.05 of the Revised Code. Vendors using the following predetermined method do not need to apply to the tax commissioner for authorization:

(a) The average charge per transaction is broken down into two components, one representing price and the other representing sales tax.

(b) The average charge per transaction for the reporting period shall be determined and divided by the sum of one plus the percentage total rate of tax applicable in the taxing jurisdiction which the storage space is located to arrive at the “price component” of the average charge per transaction. Any fraction of a cent included in such price shall be dropped.

(c) The average charge per transaction minus the “price component” determined under paragraph (F)(1)(b) of this rule yields the “sales tax component.”

(d) The total receipts for the reporting period shall be divided by the average charge per transaction to arrive at the number of transactions.

(e) The number of transactions as determined under paragraph (F)(1)(d) of this rule shall be multiplied by the “sales tax component” determined under paragraph (F)(1)(c) of this rule. This result is the amount to report as the tax on such sales for the reporting period. Taxable sales for the reporting period is total receipts less the sales tax.

(2) The following is an example of the procedure to be used pursuant to paragraph (F)(1)(b) to (F)(1)(e) of this rule:

(a) The average charge per transaction is fifty cents and the rate for the taxing jurisdiction is seven per cent. The resulting calculation under paragraph (F)(1)(b) of this rule is $0.46728972. ($0.50/1.07) The fractions of a cent are dropped, yielding a “price component” of forty-six cents for the average charge per transaction.

(b) The forty-six-cent “price component” of the transaction is subtracted from the fifty-cent average charge per transaction, resulting in the “sales tax component” of four cents included in each fifty-cent charge.

(c) The total receipts of $1.025.25 are divided by the fifty-cent average charge to arrive at 2.050.5, the number of transactions.

(d) The 2.050.5 transactions are multiplied by the “sales tax component” of four cents per transaction, resulting in the amount to report as the tax on such sales of $82.02.

HISTORY: Eff 7-31-03 (Emer.); 10-19-03; 1-16-04

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: RC 5739.01, 5739.02, 5741.07

RC 119.032 review date: 10/19/08

(A) “Transportation service” means the provision of transportation wholly within the state of Ohio by means of a motor vehicle or aircraft with a driver or pilot.

(1) Transportation service includes, but is not limited to, all of the following:

(a) Intrastate transportation by taxicab;

(b) Intrastate transportation by limousine;

(c) Intrastate bus transportation; and

(d) Shuttle service;

(2) Transportation service does not include:

(a) Transportation by ambulance. As used in this rule, “ambulance” means any motor vehicle or aircraft specially designed and equipped to provide medical transportation and includes ambulettes that are specially designed and equipped to provide transport to persons that require the use of a wheelchair;

(b) Transportation provided by transit bus as defined by section 5735.01 of the Revised Code;

(c) Transportation sold to, or provided by, a political subdivision or agency of the federal or state government, including, but not limited to, a county, municipal corporation, county transit board, regional transit authority, or regional transit commission; and

(d) Tour services, except for the transportation component as provided in paragraph (D) of this rule.

(B) A person providing a transportation service shall charge sales or use tax on the entire price paid by the consumer for the transportation service.

(C) “Tour service” means the provision of travel packages that include transportation services along with one or more of the following: admissions to events/locations; the services of guides; overnight accommodations; and any similar travel package element. A person providing only food and beverages for consumption on the motor vehicle or aircraft, in addition to a transportation service, is not providing a tour service.

(D) The transportation element of tour services is subject to the tax on providing transportation service.

(1) A tour service provider that uses a transportation service purchased from another shall be subject to the sales or use tax on transportation services in the following manner:

(a) If it does not separately state the charge for the transportation service to its customer the tour service provider is the consumer of the transportation service and it is subject to the tax based on the price it pays for the transportation service; or

(b) If it does separately state the charge for the transportation service to its customer the tour service provider is reselling the transportation service to that customer. Subject to paragraph (G) of this rule, the tour service provider shall collect and remit the tax from the customer based on that transportation service charge.

(2) A person providing a tour service using transportation equipment it owns, leases, or otherwise has a license to use shall be subject to the sales or use tax in the following manner:

(a) If it does not separately state the charge for the transportation service to its customer, the tour service provider is subject to the tax based on the costs it incurs for providing the transportation service as set forth in paragraph (E) of this rule; or

(b) If it does separately state the charge for the transportation service to its customer, subject to paragraph (G) of this rule, the tour service provider shall collect the tax from the consumer and remit the tax based on that transportation service charge.

(E) Absent special and unusual circumstances, the price charged or costs incurred by the person for the transportation service shall include, at a minimum, the following costs:

(1) The costs for the use of the vehicle or plane (depreciation) including overhead costs;

(2) The costs for the fuel and maintenance costs of the vehicle or plane;

(3) The costs for the driver(s) or pilot(s) including any costs for such person’s(‘) food and accommodations;

(4) The costs for parking and tolls; and

(5) Any additional costs for providing a transportation service.

(F) Transportation services that do not include the costs in paragraph (E) of this rule shall be considered sham transactions and will be disregarded pursuant to section 5703.56 of the Revised Code.

(G) Nothing in this rule shall prohibit a tour service provider providing transportation under paragraph (D)(1)(b) or paragraph (D)(2)(b) of this rule from allowing the customer to claim an exemption from the tax if the exemption is claimed following the procedures prescribed by section 5739.03 of the Revised Code.

Effective: 12/16/2005

R.C. 119.032 review dates: Exempt

Promulgated Under: 5703.14

Statutory Authority: 5703.05

Rule Amplifies: 5739.01(B)(3)(s)

Prior Effective Dates: 10/19/03, 01/16/04

(A)(1) An application for refund of sales or use tax, additional charge or penalty illegally or erroneously paid or paid on an illegal or erroneous assessment shall be made on a form provided by the department of taxation and filed with the department in accordance with instructions thereon. The application may be filed by a vendor, seller, or consumer, or by a tax representative designated on a form prescribed for such purposes, e.g. form TBOR-1, declaration of tax representative.

(2) When an application is filed by a vendor or a seller, the vendor or seller must show that the tax was remitted to the state. The vendor or seller must include the following with the application: the reasons why the payment of the tax was illegal or erroneous, and if the tax was collected from a consumer, proof that the applicant has either reimbursed the consumer for the amount of refund claimed or the consumer has agreed to await reimbursement until the final determination of the application.

(3) When an application is filed by a consumer, the consumer must show that it paid the tax to the vendor or seller or directly to the state. The consumer must include the following with the application: copies of invoices or similar documents for which a tax refund is being sought, proof of payment of the tax either to the vendor or seller or directly to the state, and the reasons why the payment of the tax was illegal or erroneous. The tax commissioner may require the consumer that paid the tax to a vendor or seller to submit an affidavit from the vendor or seller that states that the vendor or seller has not claimed refund of the tax.

(4) An application for refund of sales or use tax must be filed no later than four years after the date of the illegal or erroneous payment of the tax. Tax is paid on the date it is remitted to the state and not on the date it is collected by a vendor or seller from a consumer.

(B) (1) A consumer seeking refund of over-collected sales or use tax must either:

(a) File an application for refund directly with the tax commissioner pursuant to division (A)(3) of this rule; or

(b) Request a refund from the vendor or seller that collected the tax in question. A request for refund from a vendor or a seller is not an application for refund to the commissioner.

(2) If a vendor or seller denies a consumer’s refund request, the consumer may file an application for refund with the tax commissioner pursuant to paragraph (A)(3) of this rule. That is the consumer’s sole remedy to claim refund of the tax. Any such application must be filed with the commissioner within the time prescribed in paragraph (A)(4) of this rule.

(C) Any amount that is determined to be due a taxpayer on account of an application for refund of sales or use tax or request for reimbursement of the additional charge shall first be applied to any outstanding indebtedness of that taxpayer pursuant to section 5739.072 of the Revised Code. Any amount remaining after the satisfaction of such outstanding indebtedness shall be paid to the taxpayer.

Effective: 12-16-04

Promulgated under: 5703.14

Authorized by: 5703.05

Amplifies: 5703.14, 5739.07, 5739.072, 5739.12, 5739.13, 5739.14, 5741.10, 5741.12, 5741.17

Prior effective dates: 1-1-62, 1-8-82, 10-18-02

(A) Section 5703.05 of the Revised Code covers situations where particular aspects of a business are not compatible with the bracketed tax system or with the record requirements which are specified in other sections of the Revised Code. Depending on the circumstances the tax commissioner may grant a vendor one of two types of authority which relieve the vendor from burdensome compliance costs.

(1) Prepay authority is designed for situations where a lack of primary records exists or where a constriction of sales volume would occur if a separate collection of tax was imposed. For example, vending machines cannot differentiate between taxable and nontaxable food sales, produce a record of individual sales, nor separately collect tax on a taxable sales amount. Likewise, sales of taxable commodities at large spectator events would be negatively affected if each sale had to be recorded and tax was individually computed and collected. Adding tax also contributes to the potential of making small change, a circumstance detrimental to this type of vendor.

(2) Prearranged authority is designed for enterprises that generate large daily quantities of primary records. These records have little or no intrinsic value themselves and often would not be kept except for sales tax purposes. Their volume creates storage concerns and expense. A restaurant with a large number of customers is the type of business eligible for this authority.

The tax commissioner issues prepay and prearranged authorities under the conditions and procedures explained in paragraphs (B) and (C) of this rule.

(B) Prepayment (predetermined) authority

Where the conditions of any business activity are such that collection of the sales tax from the consumer in the manner provided in section 5739.03 of the Revised Code, imposes an unreasonable burden on the vendor, the tax commissioner may authorize the vendor to predetermine the bracketed tax as specified by section 5739.025 of the Revised Code, instead of collecting the tax from the consumer. This privilege is provided for in division (B) of section 5739.05 of the Revised Code and is called a prepayment authority, although no tax is actually paid until sales are made.

Situations particularly suited for prepayment authority are where sales of food are made from vending machines and the taxability of the food is governed by where it is consumed, and situations where a constant need to make small change would hinder a vendor’s capacity to make sales.

A qualifying vendor must apply for prepayment authority and agree in writing to the terms and conditions set forth by the commissioner. The agreement will specify the percentage of total sales subject to tax and the effective rate of taxation thereon. These percentages will be derived from a representative sample of the vendor’s business activity and other information available to the commissioner.

Compliance with the provisions of the prepayment authority will absolve the vendor from any additional tax liability based on sales other than that which may result from unreported sales, provided the vendor notifies the commissioner in writing of any change in the business activity which would increase the tax liability.

To ensure remittance of the proper amount of tax due, the percentages authorized by a prepayment authority issued to a vendor are subject to review upon written request of the vendor or at the discretion of the commissioner. An adjustment in the ratio of tax to taxable sales because of a change in a county’s combined state and local tax rate may be reflected in an amendment to the prepayment agreement without a complete review of the vendor’s business activity and is effective beginning the first day of the change in the combined state and local rate. Any changes in the provisions of an existing authorization which are prescribed by the commissioner as the result of a review of the vendor’s business activities will, upon agreement thereto by the vendor, become effective at the beginning of the vendor’s next reporting period.

The vendor may cancel the subject authority at the end of a current reporting period by filing a written notice thereof with the commissioner.

Notice that prepayment authority has been issued by the commissioner must be posted in a conspicuous place on the premises of the business location or of a group of vending machines for which such authority has been granted. Where sales from isolated vending machines constitute the business activity, notice is to be posted on each vending machine utilized.

The failure of a vendor to whom the prepayment authority has been granted to comply with the provisions thereof or to report a change in the conditions of the vendor’s business activity will constitute sufficient cause for cancellation of such authority and reinstatement of the requirement to collect tax from the consumer.

Nothing in paragraph (B) of this rule is to be construed as a waiver of the requirement provided in rule 5703-9-02 of the Administrative Code pertaining to the maintenance of records.

(C) Prearranged authority

Where the maintenance of primary records in the manner specified in section 5739.11 of the Revised Code and rule 5703-9-02 of the Administrative Code imposes an unreasonable burden on a vendor, the commissioner may authorize the vendor to report and pay sales tax based upon established percentages. The privilege, provided for in division (C) of section 5739.05 of the Revised Code is called prearranged authority and allows a vendor, for sales tax purposes, to dispose of primary sales records with impunity.

Eligibility for this authority is limited to food service operators licensed under section 3732.03 of the Revised Code. A qualifying vendor must apply for prearranged authority and agree in writing to the terms and conditions as set forth by the commissioner. The agreement will specify the percentage of total sales subject to tax and the effective rate of taxation thereon, for each vendor’s license covered by the authority. These percentages will be computed based on a test check of a representative sample of the vendor’s business activity.

Compliance with the provisions of the prearranged authority requires that the vendor continue collecting tax from the consumer on taxable sales and report the tax computed under the terms of the agreement.

The vendor or commissioner may request a recomputation of the percentages specified in the agreement, if either believes the nature of the vendor’s business has changed sufficiently to question the continuing validity of the most recent test check. A change in the provisions of an authorization because of a recomputation will, upon the written agreement of the parties, become effective at the beginning of the vendor’s next reporting period. An adjustment to the ratio of tax to taxable sales because of a change in the combined state and local sales tax rate may be reflected in an amendment to the prearranged agreement without performing a new test check and becomes effective beginning the first day of a change in the combined state and local rate.

A prearranged authority may be cancelled by the vendor or commissioner effective at the end of a reporting period by filing, personally or by certified mail, a written notice thereof with the other party. Failure by the vendor to comply with the provisions of the authority is sufficient reason to cancel the authority and to reimpose the responsibility to maintain adequate primary records, as specified in rule 5703-9-02 of the Administrative Code.

Nothing in paragraph (C) of this rule is to be construed as a waiver of the requirement provided in rule 5703-9-02 of the Administrative Code pertaining to the maintenance of secondary records.

HISTORY: Replaces rule 5703-9-08; Eff 7-9-65; 1-1-70; 11-4-91

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: RC 5739.05, 5741.06

Upon application to the Tax Commissioner, and subject to his approval, a vendor who operates two or more places of business within the State may be authorized to file a cumulative form of return, reporting thereon the cumulative totals of the data required to be reported for each establishment. Cumulative returns shall be supplemented by a detailed report of such data and information applicable to each individual establishment as the commissioner may require.

HISTORY: (former TX-11-09); Eff 1-1-62

Rule promulgated under: RC 5703.14

(A) If any sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle is claimed to be exempt from the sales or use tax on the basis either of the intended use of the vehicle by the purchaser in this state or of the sale being made to a church or nonprofit organization whose purchase is exempt from the tax levied by or pursuant to Chapters 5739. and 5741. of the Revised Code, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by a certificate of exemption executed by the purchaser that specifies the reason the sale is not legally subject to the tax. A form required to be prescribed by rule is hereby prescribed for use as a certificate of exemption regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle. The form may be obtained from the department of taxation and is available on the departmentÆs web site. The form may be reproduced as needed. (B) If any sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle is claimed to be exempt from the sales tax on the basis that the sale is in interstate commerce, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by a statement of fact regarding the sale. A form not required to be prescribed by rule is available for use as a statement regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle in interstate commerce. The form is not prescribed by or a part of this rule. The form may be obtained from the department of taxation and is available on the departmentÆs web site. The form may be reproduced as needed.

(C) If any sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle is claimed to be exempt from the sales tax on the basis that the sale is to an out-of-state resident for immediate removal of the motor vehicle from Ohio for exclusive use outside this state, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by an exemption certificate and affidavit signed by the purchaser. A form required to be prescribed by rule is hereby prescribed for use as an exemption certificate and affidavit regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle to an out-of-state resident. The form may be obtained from the department of taxation and is available on the departmentÆs web site. The form may be reproduced as needed.

(D) A copy of each of the above described statements and/or certificates is to be retained by the applicant and two copies presented to the clerk of courts, who shall retain one copy and submit the other copy to the department of taxation.

(E) The clerk of courts shall issue a receipt upon collection of the tax resulting from sales of motor vehicles, off-highway motorcycles, and all-purpose vehicles. The clerk shall retain the original and give a copy to the remitter of the tax.

(F) On Monday of each week, each county clerk of courts shall forward to the treasurer of state the Ohio sales and use tax collections resulting from sales of motor vehicles, off-highway motorcycles, and all-purpose vehicles, accompanied by the remittance report, and shall forward to the department of taxation a copy of each statement and/or certificate required herein to be obtained in lieu of tax payment.

(G) The following forms are incorporated in this rule by reference:

(1) The certificate of exemption regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle, revised March 15, 2004;

(2) The exemption certificate and affidavit regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle to an out-of-state resident, revised March 15, 2004.

HISTORY: (former TX-11-10); Eff (Amended) 12-10-71; (Amended) 4-18-74; 1-18-79; Rescinded and reenacted eff. 6-3-04

Rule promulgated under: RC 5703.14

Rule Authorized by: RC 5703.05, 5739.03, 5741.02

Rule amplifies: RC 4505.06, 5703.05, 5739.01, 5739.02, 5739.03, 5741.02

R.C. 119.032 review dates: Exempt

(A) A vendor or seller may deduct from his gross sales an amount equal to the purchase price of merchandise returned and services rejected by his customers during the reporting period. The vendor or seller must refund to the customer or credit the customer’s account with the full purchase price of the tangible personal property returned or the service rejected plus the full amount of sales or use tax applicable thereto.

(B) In no event shall a transaction be treated as a return of merchandise or a rejection of services for purposes of reporting sales or use tax if the vendor or seller deducts from the customer’s refund any amount for use, damage, or wear and tear of the merchandise returned, any restocking or handling charge, or otherwise fails to refund to the customer or credit the customer’s account with the full purchase price and applicable tax.

(C) This rule does not apply to trade-ins and core charges which constitute part of the purchase price pursuant to sections 5739.01 and 5741.01 of the Revised Code and rule 5703-9-26 of the Administrative Code.

HISTORY: Replaces rule 5703-9-11; Eff (Amended) 1-1-62; 10-18-82

Rule promulgated under: RC 5703.14

Rule amplifies: RC 5703.14, 5739.01, 5739.12, 5741.01, 5741.12

In the event merchandise purchased from a vendor, upon the sale of which tax has been charged, is returned to the vendor in exchange for another item the vendor may, provided he allows the customer the full purchase price of the item returned plus the tax thereon, either by credit or refund, record the net difference between the selling price of the item returned and the item delivered to the customer in the exchange as an addition to or deduction from gross sales, whichever is appropriate.

If the price of the item delivered to the customer in the exchange is greater than the price of the item returned the vendor must report the difference as an addition to gross sales and collect the appropriate amount of Sales Tax thereon.

If the price of the item delivered to the customer in the exchange is less than the price of the item returned the difference in price may be deducted from gross sales.

The provisions of this Rule shall not apply to “trade-ins” so as to conflict with the statutory definition of “sale” and “price” as provided in Revised Code 5739.01.

HISTORY: (former TX-11-12); Eff 1-1-62

Rule promulgated under: RC 5703.14

(A) Vendor’s sales tax returns:

(1) Vendors licensed under section 5739.17 of the Revised Code are required to file returns and remit tax due each month unless the tax commissioner authorizes filing at less frequent intervals as provided in paragraph (A)(2) of this rule.

(2) Vendors that do not hold a permit to sell alcoholic beverages will be authorized to file returns and remit tax due on a semiannual basis if their average monthly sales tax collections are less than two hundred dollars.

(3) Notwithstanding paragraph (A)(2) of this rule, the commissioner may require any vendor that fails to timely file returns and remit tax due to file returns and remit tax on a monthly basis.

(B) Seller’s use tax returns:

(1) Sellers required to register under division (A) of section 5741.17 of the Revised Code are required to file returns and remit tax due in the same manner as vendors under paragraph (A) of this rule.

(2)

(a) Sellers registered voluntarily under division (B) of section 5741.17 of the Revised Code are required to file returns and remit taxes due on a calendar year basis. Additionally, such seller shall file a return and remit tax collected for any month in which the seller has collected an accumulated amount of state and local use taxes of one thousand dollars or more.

(b) If at any point in a calendar year the seller has collected over eighteen thousand dollars of tax, the seller shall thereafter be required to file on a monthly basis unless the seller can substantiate to the commissioner that its future tax collections are expected to be less than one thousand dollars per month.

(C) Direct pay returns:

(1) Holders of direct pay permits issued pursuant to section 5739.031 of the Revised Code are required to file returns and remit tax due each month unless the tax commissioner authorizes filing at less frequent intervals as provided in paragraph (C)(2) of this rule.

(2) Holders of direct pay permits will be authorized to file returns and remit tax due on a quarterly basis if their average monthly liability is less than five thousand dollars.

(D) Consumer’s use tax returns:

(1) Business consumers:

(a) Business consumers that file returns pursuant to section 5741.12 of the Revised Code are required to file returns and remit tax due each month unless the tax commissioner authorizes filing at less frequent intervals as provided in paragraph (D)(1)(b) of this rule.

(b) Business consumers will be authorized to file returns and remit tax due on a quarterly basis if their average monthly liability is less than five thousand dollars.

(2) Individual consumers:

(a) Individuals that do not file consumer’s use tax returns under paragraph (D)(2)(c) of this rule and whose use tax liability in the current calendar year is anticipated to be not more than one thousand dollars may file and remit the tax due in any year either on their income tax return for that year by the due date of that return or on a voluntary payment return form for the calendar year.

(b) Individuals that report and remit tax under paragraph (D)(2)(a) of this rule that make either an extraordinary individual purchase on which the tax exceeds seven hundred fifty dollars or a purchase of a motor vehicle, titled watercraft or titled outboard motor, on which tax is neither collected by a vendor nor, in the case of a motor vehicle, titled watercraft or titled outboard motor, paid by the consumer to the clerk of courts, must separately report and remit tax on that purchase using a voluntary payment return form for the calendar quarter in which the purchase was made. Any such extraordinary purchase shall not be considered in calculating the tax liability for the current calendar year under paragraph (D)(2)(a) of this rule.

(c) Except as provided in subparagraph (d) of paragraph (D)(2) of this rule, individuals whose annual tax liability is greater than one thousand dollars or any other individuals that the commissioner requires to obtain a consumer’s use tax account or voluntarily obtain such an account shall file returns in the same manner as business consumers under paragraph (D)(1) of this rule.

(d) The tax commissioner may, by agreement with any individual taxpayer required to file monthly consumer’s use tax returns, authorize an alternate method of filing if that method will make the individual’s tax reporting more accurate and expeditious.

(E)

(1) As used in this rule, returns filed on a semiannual basis will be for the reporting periods January through June and July through December. Returns filed on a quarterly basis will be for the reporting periods January through March, April through June, July through September and October through December.

(2) Except as otherwise provided in this rule, any sales tax, seller’s use tax, direct pay, or consumer’s use tax return, including a voluntary payment return, must be filed on or before the twenty-third day of the month following the end of the reporting period.

(3) The tax commissioner shall establish a filing interval for each newly registered vendor, seller, direct pay holder or consumer’s use tax account holder within a reasonable amount of time of setting up the account and shall inform the vendor, seller, direct pay holder or consumer of that filing interval. Except as provided in paragraph (B)(2) or (D)(2) of this rule, unless the taxpayer is notified by the commissioner of an alternate filing period the filing period shall be monthly.

(F) Partial returns may be required for any taxpayer reporting on a semiannual or quarterly basis as a result of a tax rate change that becomes effective during a reporting period. The partial returns are necessary to separate the two tax rates in effect during the reporting period.

(G) For purposes of computing any applicable penalty, interest, and additional charges, unreported sales or use tax that was not but should have been reported pursuant to paragraph (A) to (D) of this rule shall be considered due on the filing date of the tax return for such unreported tax as determined using the filing basis authorized under those paragraphs.

(H) Notwithstanding the provisions of paragraphs (A) and (B) of this rule, the returns must be filed and tax due remitted on a monthly basis for any vendor or seller that elects to employ a certified service provider, as defined in division (C) of section 5740.01 of the Revised Code, or that uses a certified automated system, as defined in division (B) of section 5740.01 of the Revised Code.

(I) Any holder of an active vendor’s license, seller’s use tax account, direct pay account or consumer’s use tax account shall file returns according to the filing schedule established under this rule for every filing period, regardless of whether there is tax liability for that period.

(J) The tax commissioner shall calculate the “average monthly liability,” as that term is used in paragraphs (A)(2), (C)(2), and (D)(2) of this rule, using the liability of the vendor, seller, direct pay holder or consumer’s use tax account holder for a previous period of not less than one year and not more than two years.

(K)

(1) The tax commissioner may require any vendor, seller, direct pay holder or consumer to use a different filing period than required by paragraphs (A), (B)(1), (C), or (D) of this rule if the commissioner finds that it would result in improved compliance or increased administrative efficiency.

(2) Any vendor, seller, direct pay holder or consumer may file a request with the tax commissioner to change their reporting period. The commissioner may agree to the request if the commissioner finds the alternate filing period would improve compliance or increase administrative efficiency.

(3) Whenever the commissioner changes a filing period for a vendor, seller, consumer or direct pay holder, the commissioner shall determine the date on which the change in filing period takes effect.

(L) Except as provided in division (B)(2) of this rule, nothing in this rule shall be construed to have any impact on whether a vendor, seller, direct pay holder or consumer is required to make remittances by electronic funds transfer or to make accelerated payments of tax liability.

Replaces: 5703-9-13

Effective: 09/25/2005

R.C. 119.032 review dates: 09/01/2010

Promulgated Under: 5703.14

Statutory Authority: 5703.05

Rule Amplifies: 5739.031, 5739.17, 5740.01, 5741.12 and 5741.17

Prior Effective Dates: 8/10/64, 1/1/83, 7/13/92

(A) A “construction contract” is any agreement, written or oral, pursuant to which tangible personal property is or is to be transferred and incorporated into real property, as defined in section 5701.02 of the Revised Code, so as to become a part thereof without regard to whether it is new construction or an addition to or alteration of an existing building or structure. A “construction contractor” is any person who performs such an agreement, whether as prime contractor or subcontractor.

(B) Tangible personal property that is permanently affixed to real property, but that primarily benefits the business conducted on the premises by the occupant, is a “business fixture,” as defined in section 5701.03 of the Revised Code, and retains its status as personal property after such affixation is made. An agreement to transfer and install a business fixture is a sale and not a construction contract.

The transfer and affixation of personal property where title to the personal property does not transfer to the owner or lessee of the premises is a sale and not a construction contract. The item affixed remains personal property since the failure to transfer title displays an intention not to make the affixation permanent.

Tangible personal property that is temporarily affixed during construction, such as temporary electricity or water service hook-ups, fencing, construction elevators, shoring lumber, and concrete forms, is not incorporated into real property for sales and use tax purposes. This applies even if these items remain affixed after construction is completed due to inadvertence, convenience, or economic necessity.

(C) The sale and installation of the following items is never a construction contract and such transactions are to be treated as the sale and installation of tangible personal property for sales tax purposes:

(1) Carpeting, including carpet padding, tack strips, adhesive, and similar materials that are integral and necessary components of a carpet installation transaction;

(2) Agricultural land tile as defined in division (B)(5)(a) of section 5739.01 of the Revised Code;

(3) Portable grain bins as defined in division (B)(5)(b) of section 5739.01 of the Revised Code; and

(4) Trees, shrubs, sod, seed, fertilizer, mulch, and other tangible personal property transferred as part of a landscaping and lawn care service as defined in division (DD) of section 5739.01 of the Revised Code.

This provision shall not be construed to alter or affect the classification of such items after installation is completed.

(D)(1) A construction contractor who purchases materials or taxable services for incorporation into real property is the consumer of those materials or services and shall pay sales or use tax on their purchase price, except as provided by paragraph (F) of this rule. The construction contractor is the consumer, even if a subcontractor provides the actual labor to incorporate those materials into the real property. Nevertheless, a construction contractor may purchase exempt from tax those materials or services that will be incorporated:

(a) Into real property under a construction contract with the United States government or its agencies, the state of Ohio, or an Ohio political subdivision;

(b) Into real property that is owned, or will be accepted for ownership at the time of completion, by the United States government or its agencies, the state of Ohio, or an Ohio political subdivision;

(c) Into a house of public worship or religious education or a building used exclusively for charitable purposes by a nonprofit organization operated exclusively for charitable purposes as defined in division (B)(12) of section 5739.02 of the Revised Code;

(d) Into the original construction of a sports facility under section 307.696 of the Revised Code;

(e) Into real property in another state, if the materials or services, when sold to a construction contractor in that state for incorporation into real property in that state, would be exempt from a tax on sales levied in that state;

(f) Into a horticulture structure or livestock structure as defined in section 5739.01 of the Revised Code for a person engaged in the business of horticulture or producing livestock; or

(g) Into a hospital facility entitled to exemption under section 140.08 of the Revised Code.

(2) When claiming exemption under paragraph (D)(1) of this rule, the contractee and contractor must issue exemption certificates in accordance with paragraphs (I) and (J) of this rule. The contractee shall be deemed to be the consumer of all materials and services purchased under the claim of exemption and liable for the tax on the incorporated materials or services in the event the tax commissioner ascertains that the contractee was not entitled to exemption.

(E) A construction contractor who also makes substantial sales of the same types of tangible personal property that the contractor incorporates into real property in performing construction contracts may purchase those types of tangible personal property excepted from sales and use tax on the basis of resale under division (E) of section 5739.01 of the Revised Code. The contractor, unless granted direct payment authority, must have a consumer’s use tax account with the department of taxation and accrue and pay use tax on the price of all materials consumed in performing construction contracts, in accordance with rule 5703-9-04 of the Administrative Code.

Similarly, a construction contractor who purchases materials without payment of the tax because the contractee has claimed an exemption under division (D) of this rule, must pay use tax on any materials not used on the exempt job and consumed by the contractor in a taxable manner.

(F)(1) A person who manufactures or fabricates items of tangible personal property , and then sells some of the items and incorporates some into real property, must elect whether to be treated as a manufacturer or as a construction contractor on the purchase of raw materials incorporated into the manufactured items. The manufacturer/construction contractor need not notify the tax commissioner of such election and may elect to treat purchases of raw materials for distinct manufactured items differently. However, complete records must be maintained to show how the person elected to treat each purchase of raw materials.

(a) If the person elects to be treated as a manufacturer, the purchase of all raw materials may be exempted from the tax on the basis that they will be incorporated as a material or part into an item manufactured for sale under division (B)(43)(a) of section 5739.02 of the Revised Code. The manufacturer must accrue and pay use tax on the price of any self-manufactured item subsequently consumed in performing a taxable construction contract, or in any other taxable manner, in accordance with paragraph (A) of rule 5703-9-21 of the Administrative Code.

(b) If the person elects to be treated as a construction contractor, the person must pay sales or use tax on the acquisition cost of all raw materials, unless such materials are ultimately consumed in performing a nontaxable construction contract under paragraph (D) of this rule. The construction contractor must pay sales or use tax on all raw materials, and no refund of such tax will be allowed, even though the raw materials are incorporated into an item manufactured for sale. If such sale is a retail sale, the construction contractor is acting as vendor and must appropriately collect sales tax on such transaction.

(2) The election required by paragraph (F)(1) of this rule applies only to the purchase of raw materials that will become parts or components of a manufactured items. Machinery and equipment used by the person in manufacturing shall be taxed based upon its quantified primary use without regard to how the manufacturer/construction contractor elects to treat the raw materials for sales and use tax purposes.

(G) The contractee may, or upon request of the contractor pursuant to the procedure specified in division (C) of section 5739.03 of the Revised Code shall, certify to the contractor what portions of a contract will be, at the completion of the contract, classified as personal property and what portions will be classified as real property. The fact that a certification has been made by the contractee must be noted in every written construction contract, and the contractor, subcontractors, and contractee shall each maintain a copy of the certification with the job documentation. If the tax commissioner subsequently determines that property certified by the contractee as personal property is, in fact, real property, the contractee shall be deemed the consumer of all materials incorporated into such real property and may be assessed sales or use tax thereon along with applicable interest and penalty.

The certification of the contractee has application only to the tangible personal property installed or incorporated pursuant to the contract. Equipment, tools, and supplies used by the contractor in performing the contract shall be taxed based upon their primary use without regard to the contractee’s certification.

(H) Machinery, equipment, tools, supplies, and other tangible personal property purchased or leased by a construction contractor and used or consumed in performing a construction contract, including a contract specified in paragraph (D) of this rule, are taxable. The repair or installation of these items is also taxable.

(I)(1) A contractee claiming an exemption specified in division (D) of this rule must complete and deliver to the contractor a construction contract exemption certificate. If the contractee is a governmental entity, a government official must sign under the “political subdivision” section of the certificate. All other contractees claiming exemption must sign under the “owner/contractee” section. If there is one prime contractor on the job, the contractee need only supply one exemption certificate to the prime contractor.

The contractor should make copies of the construction contract exemption certificate signed by the contractee and use those copies when making purchases of materials that will be incorporated into real property pursuant to the construction contract. A prime contractor must provide copies to all subcontractors for their use in purchasing materials for the job. The contractor or subcontractor must sign each certificate copy used when purchasing materials.

The original exemption certificate must be retained in the records of the contractor. A copy of the certificate also must be retained in the records of each subcontractor.

(2) Rather than using copies of the construction contract exemption certificate when making purchases of materials, the contractor or subcontractor may use a contractor’s exemption certificate when purchasing materials for incorporation into real property pursuant to a contract where the contractee claims exemption under paragraph (D) of this rule.

(J) Forms required to be prescribed by rule are hereby prescribed for use as a construction contract exemption certificate and as a contractor’s exemption certificate. The forms may be obtained from the department of taxation and are available on the department’s web site. They may be reproduced as needed. To be valid, a construction contract exemption certificate must be signed by the contractee claiming exemption. Each certificate, or copy of a certificate, submitted to a vendor must be signed by the contractor or subcontractor making the purchase. A certificate covers all sales of materials made by the vendor to a contractor or subcontractor for incorporation into real property under that construction contract. The vendor must maintain the certificate to document the reason tax was not charged.

To be valid, all necessary signatures must be dated and all certificates must specify the reason for exemption and must clearly identify the contract and specify the job site.

(K) The following forms are incorporated in this rule by reference:

(1) The construction contract exemption certificate, revised March 15, 2004;

(2) The contractor’s exemption certificate, revised March 15, 2004.

Effective: 12-16-04

Promulgated under: 5703.14

Authorized by: 5703.05

Amplifies: 5701.02, 5739.01, 5739.02, 5739.03, 5741.01, 5741.02

Prior effective dates: 5-31-68, 7-2-81, 10-18-82, 7-20-92

(A) For the purposes of this rule:

(1) “Coupon” means a certificate, ticket, card or other document which entitles the bearer thereof to a specified discount on the purchase of tangible personal property or services. Discounts may include either fixed amount or percentage reductions from the cost of merchandise or free merchandise with the purchase of other items.

(2) “Coupon book” means a bound collection of coupons that are redeemable by a merchant or several designated merchants and includes, such things as dining or entertainment discount clubs.

(3) “Gift certificate” means a document which has a face value toward the purchase of tangible personal property or services.

(B) Coupons published by a vendor or on behalf of a vendor in a newspaper, handbill, magazine, or by any method and distributed to the public without charge, other than the cost of the newspaper or magazine, and for which the redeeming vendor receives no reimbursement, are considered to be discounts allowed prior to the consummation of the sale and are not part of the taxable price.

(C) When coupons that are published by a manufacturer, distributor, wholesaler, or any other person, and for which the vendor is reimbursed by the manufacturer, distributor, or wholesaler upon surrender of the coupons, are redeemed by a consumer, the price for tax purposes is the selling price of such property or services before application of the coupon amount. If the vendor enhances the value of a coupon, the amount of the unreimbursed enhancement will be treated in the manner described in paragraph (B) of this rule.

(D)(1) Coupons, coupon books, and gift certificates which are sold, either by the vendor which anticipates redeeming them or by any corporation, association, or other person for use among a variety of vendors, are not to be treated as the sale of tangible personal property and no tax should be collected on such sales.

(2) When a purchased coupon, coupon book, or gift certificate is used to purchase taxable tangible personal property or services, the price for tax purposes is the selling price of such property or services before application of the discount or gift certificate amount.

HISTORY: Replaces rule 5703-9-15, 5703-9-16, 5703-9-36; Eff 7-11-39; 1-1-62; 6-12-82; 11-4-91

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: RC 5739.01

“Affiliated group” as used in Chapter 5739. and 5741. of the Revised Code has the same meaning as in division (B)(3)(e) of section 5739.01 of the Revised Code. In the case of a partnership, a general partner that has or controls at least a fifty per cent partnership interest will be considered to control the partnership.

HISTORY: Eff 5-6-04

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: None

RC 119.032 Review Date: Exempt

(A) A “conditional sale” is a transaction in which the vendor retains a security interest in the tangible personal property sold to insure fulfillment of one or more conditions before full ownership is granted to the consumer. A “layaway sale” is a conditional sale in which the vendor transfers title but retains possession of the property sold. An “approval sale” is a conditional sale in which the vendor transfers possession but retains title to the property sold. A lease under the terms of which the lessee is obligated to accept ownership and to pay for tangible personal property at a future time is a conditional sale. A lease which does not so obligate the lessee is not a conditional sale and tax must be collected either at the time the lease is consummated or on periodic billings as specified in divisions (H)(1) and ((H)4) of section 5739.01 of the Revised Code and divisions (G)(1) and (G)(4) of section 5741.01 of the Revised Code.

(B) A conditional sale is effected at the time and place of acceptance of the purchase offer by the vendor. The sales tax must be charged on the full agreed price at that time and reported on the vendor’s return for the period in which the sale is effected.

(C) In the event the consumer fails to fulfill the conditions of the sale so that title and possession revert to the vendor, the vendor may treat the transaction as one involving returned merchandise in accordance with rule 5703-9-11 of the Administrative Code if it is shown that the vendor refunded the full amount of all payments made by the consumer, including the sales or use tax paid. The transaction may otherwise be treated as a bad debt in accordance with section 5739.121 of the Revised Code and rule 5703-9-44 of the Administrative Code.

HISTORY: Eff 5-11-55; 1-1-62; 7-2-81; 4-28-03

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: RC 5739.01, 5739.12, 5739.121

Replaces: 5703-9-17, 5703-9-18

R.C. 119.032 review dates:

“Subscriber” as used in division (XX) of section 5739.01 of the Revised Code includes both residential and business customers. “Subscriber” does not include an AM or FM radio or television broadcast station, a cable television system, or a telecommunications or mobile telecommunications service provider.

HISTORY: Eff 1-1-04

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: RC 5739.01

RC 119.032 review date: 1-1-09

An “installment sale” is a sale in which the vendor agrees to accept payment of the price in two or more partial payments at intervals over a period of time. A “credit sale” is a sale in which the vendor agrees to accept payment of the price in minimum partial payments over an indefinite period of time.

The vendor must collect from or charge to the customer the entire amount of the tax as computed on the price of an installment or credit sale, irrespectve of the amount of the installment or down payment made by the consumer if any. Each installment sale or credit sale and the tax applicable thereto must be reported on the vendor’s return covering the period in which the sale occurred. If the account is underpaid in whole or in part by the consumer, the transaction may be treated as a bad debt in accordance with section 5739.121 of the Revised Code and rule 5703-9-44 of the Administrative Code.

HISTORY: Eff 1-1-62; 7-2-81

Rule promulgated under: RC 5703.14

Rule amplifies: RC 5703.14, 5739.01, 5739.12, 5739.121

(A) Production or fabrication of tangible personal property for a consideration is included in the definition of “sale” and “selling,” as defined in division (B) of section 5739.01 of the Revised Code, whether all or a portion of the materials are supplied by the person performing the production or fabrication, by the consumer, or by a third party. Any change in the substance or form of tangible personal property, so as to create a new article or substantial change in an existing article of tangible personal property, constitutes “production” or “fabrication.”

(B) The price of the transaction is the entire amount charged to the purchaser for such production or fabrication, including charges for the cost of materials, labor, overhead, and profit, pursuant to division (H) of section 5739.01 of the Revised Code and rule 5703-9-26 of the Administrative Code.

(C) A person engaged in production or fabrication of tangible personal property for consideration is deemed to be manufacturing for sale and subject to the provisions of rule 5703-9-21 of the Administrative Code.

HISTORY: Eff 10-7-47; 10-18-82; 11-4-91

Rule promulgated under: RC 5703.14

Rule authorized by: RC 5703.05

Rule amplifies: RC 5703.14, 5739.01

(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 include packaging.

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 for sale.

(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 product.

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 63.

(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 process.

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 manufacturing operation.

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 taxable.

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 taxable.

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 equipment.

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 treatment chemicals.

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, and conveyors.

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 facility.

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 manufacturing facility.

(4) Tangible personal property used to store fuel, water, solvents, acid, oil, or similar items consumed in the manufacturing operation.

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 manufacturing operation.

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 highways.

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 taxable manner.

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 commissioner. EXAMPLES

Example 1

A steel manufacturer galvanizes its flatroll 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.

Example 2

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.

Example 3

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 crane.

• Because the raw material is committed to the manufacturing process at the hopper, neither the hopper nor the scale is taxable.

Example 4

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 process.

• 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.

Example 5

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 be taxable.

Example 6

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 for shipment.

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 hopper.

• 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 manufacturing process.

• 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.

Example 7

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 ceiling.

• The paper coater is production machinery and is not taxable.

• 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 real estate.

• 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.

Example 8

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.

Example 9

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.

Example 10

A manufacturer of clay pipe uses forklift tractors to transport the pipe from the machine in which it is formed to the kiln.

• The forklift tractors are used to handle an in-process product and are are not taxable.

Example 11

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 sold.

• 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.

Example 12

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 operation.

• 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.

Example 13

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 shipping.

• The solvent and acid are consumables used to prepare the product during the manufacturing operation and are not taxable.

• 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.

Example 14

A catalyst is used by a chemical manufacturer to facilitate or cause a reaction between other chemicals during the processing operation.

• The catalyst interacts with the product, is an integral part of the manufacturing operation, and is therefore not taxable.

Example 15

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 mainframe.

• 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.

Example 16

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 taxable.

• The control booth and the equipment and controls in it are not taxable.

• The temperature graphing device which records the temperature data is taxable since it functions as a recordkeeping device.

• The platform that supports the control booth is not taxable, since it supports the operator of production machinery.

• The furnace stack and flue assembly within the stack are not taxable, since they provide regulation of the furnace temperature.

Example 17

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 product.

• The microscopes are not taxable because they are necessary for the continuation of the manufacturing operation.

Example 18

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 manufac