(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 is
being manufactured 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.
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
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
Things used in any activity, including movement
or storage of the materials or parts before they are committed are
See examples 1, 2, 3, 4, 6, 9, 40, 61, 63, and
means removing or separating a desirable product from raw or contaminated
materials by distillation or physical, mechanical, or chemical
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.
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 and,
solely for the purposes of division (B)(12) of section 5739.011 of the Revised
Code, a person who meets all the qualifications of that division.
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
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
See examples 21, 23, and 57.
handling" means the movement of the product being or to be manufactured,
during which movement of the product is not undergoing any substantial change
or alteration in its state or form.
means a process or procedure to identify the properties or assure the quality
of a material or part.
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.
manufacturing operation" means the process in which raw materials or
components are moved through the steps whereby manufacturing occurs. Materials
handling of raw materials or parts from the point of receipt or pre-production
storage or of a completed product, to or from storage, to or from packaging, or
to the place from which the completed product will be shipped, is not a part of
a continuous manufacturing operation.
The continuous manufacturing operation begins
at the point where the raw materials or parts are committed and ends at the
point where the product is completed.
There may be several continuous manufacturing
operations at the same manufacturing facility, each producing a different
The things used in the continuous manufacturing
operation include all production machinery, the materials handling equipment
that moves the product between the production machines, and any equipment, such
as tanks, shelves, or racks, that temporarily store or hold the product in
between production machines. Even though testing equipment used to test
in-process product is not taxable under this rule, no testing procedure is part
of the continuous manufacturing operation unless it is physically and
functionally integrated between steps on the production line.
See examples 1, 6, 8, 11, 19, and 63.
(C) Things transferred for use in a
manufacturing operation include, but are not limited to, any of the
(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
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
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,
(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
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
See examples 1, 15, 16, 17, 18, 25, 29, 52, 55,
57, and 59.
(5) Machinery, equipment,
fuel, power, material, parts, and other tangible personal property used to
manufacture machinery, equipment, or other tangible personal property used in
manufacturing a product for sale.
If a manufacturer makes an item that is used in
the manufacturing operation as described in this rule, such as tools, tooling,
replacement parts for machinery, or consumable substances, such as acid or
solvents, the raw materials and components that go into that item are not
Certain things used by the manufacturer to make
the item that will be used in the manufacturing operation are also not taxable.
These things include the machinery which manufactures the item by changing the
state or form of the raw materials or components, the materials handling
equipment which moves the item between such machinery, and any fuel or power
used to operate the machinery or materials handling 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
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
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.
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
(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
See examples 38, 44, 55, and 56.
(12) Machinery and
equipment, detergents, supplies, solvents, and any other tangible personal
property located at a manufacturing facility that are used in the process of
removing soil, dirt, or other contaminants from, or otherwise preparing in a
suitable condition for use, towels, linens, articles of clothing, floor mats,
mop heads or other similar items, to be supplied to a consumer as part of
laundry and dry cleaning services as defined in division (BB) of section
5739.01 of the Revised Code, only when the towels, linens, articles of
clothing, floor mats, mop heads, or other simlar items belong to the provider
of the services.
(13) Equipment and
supplies used to clean processing equipment that is part of a continuous
manufacturiing operation to produce milk, ice cream, yogurt, cheese, and
similar dairy products for human consumption.
See examples 63 and 64.
(D) Things transferred for use in a
manufacturing operation do not include:
(1) Tangible personal
property used in administrative, personnel, security, inventory control, record
keeping, ordering, billing, or similar functions.
Those things that are used in the
"non-manufacturing" aspects of the manufacturer's business are
generally taxable. This includes what is broadly known as office equipment,
furniture, and supplies. Anything, including computers and software, used for
communication, ordering, billing, inventory control, or record keeping,
including testing or production records, is taxable.
Things used in providing security include
devices to monitor or observe personnel or detect intruders.
See examples 7, 15, 16, 19, 39, and 55.
(2) Tangible personal
property used in storing raw materials or parts prior to the commencement of
the manufacturing operation or used to handle or store a completed product,
including storage that actively maintains a completed product in a marketable
state or form.
(3) Tangible personal
property used to handle or store scrap or waste intended for disposal, sale, or
other disposition, other than reuse in the manufacturing operation at the same
(4) Tangible personal
property used to store fuel, water, solvents, acid, oil, or similar items
consumed in the 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
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
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
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
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, 49, and 54.
(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
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, 53, and
(8) 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.
(9) 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 (B)(42)(f) of section 5739.02
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 (B)(42)(f) of section 5739.02 of the Revised
(G) Nothing in this rule restricts or
denies any exception or exemption that may be available to a manufacturer under
other provisions of the sales tax statutes or rules of the tax
A steel manufacturer galvanizes its 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.
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
* 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
* 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
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
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
* 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 it has
been committed to the process and are thus not taxable.
* The equipment used to test the raw crude is not
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
* This activity does not constitute refining.
Consequently, the hose and other equipment used to hose down the pile would be
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
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
* The talc hopper is also not taxable as it is
the point where handling from initial storage has ceased and the material is
committed to the manufacturing process.
A paper manufacturer makes special paper for use
in full color photocopying. The process to apply the paper coating must be done
in a dust and pollution free environment. Rolls of paper are passed through a
machine where the coating is applied and dried. This process occurs in a clean
room, which is separated from the rest of the plant by airtight partitions and
ceiling coated with an easily cleaned plastic. Three of the walls and the
ceiling are free standing and not part of the walls and ceiling of the building
itself; the fourth wall, however, is a section of a wall of the larger
structure. Employees can only enter the clean room through two airlocks, which
prevent dirty air from entering. All air is filtered and regulated as to
temperature and humidity by heat pumps, electric heaters, dehumidifiers, and
exhaust fans that serve only the clean room and maintain a positive air
pressure in the room. This equipment is automatically controlled by a small
computer using data from air monitoring sensors in the room. Employees must
wear disposable paper coveralls, overshoes, and caps. The room has an intercom
to minimize personnel traffic in and out of the room. Lighting in the room is
by normal fluorescent fixtures attached to the ceiling.
* The paper coater is production machinery and is
* 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.
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
* The manufacturing operation ends with the
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
for hand protection 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
* 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
A manufacturer of clay pipe uses forklift
tractors to transport the pipe from the machine in which it is formed to the
* The forklift tractors are used to handle an
in-process product and are are not taxable.
A petroleum refinery produces an intermediate
feed, such as naphtha, which is temporarily stored. It eventually will be
further processed into a completed product which will be 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.
Water purchased from a public utility is used by
a refiner to quench (cool) a gaseous product stream flowing from a distillation
tower so as to lower its temperature or convert it to a liquid for further
processing. Since the water does not touch the product directly, it does not
need any treatment to make it suitable for use in the manufacturing
* The water is used in the manufacturing
operation. Any equipment used to handle it from the point where it enters the
manufacturing facility is not taxable. Any piping from the utility supply line
is therefore not taxable.
A steel fabricator purchases coil steel. After
the steel is committed to the manufacturing operation, it is dipped in solvent
to remove dirt, oil, and grease. It is then further cleaned by dipping in an
acid bath. After fabrication is completed, the steel is sprayed with oil to
prevent formation of rust on the surface of the product. After the oil spray,
the steel is transported to the truck dock for loading and shipping.
* The solvent and acid are consumables used to
prepare the product during the manufacturing operation and are not
* The spraying of the protective oil on the
completed product constitutes the end of the manufacturing operation.
* The oil is a consumable which interacts with
the product and is therefore not taxable.
A catalyst is used by a chemical manufacturer to
facilitate or cause a reaction between other chemicals during the processing
* The catalyst interacts with the product, is an
integral part of the manufacturing operation, and is therefore not
At a motor vehicle assembly plant, the
manufacturer uses a bar code system to track the flow of components. As
components are received from other manufacturing facilities or outside
suppliers, a bar code label is attached and then scanned with a wand to record
it in the plant mainframe computer, along with pertinent data keyed in by the
employee to identify the part. This computer is also used for various
administrative functions. It does not control the assembly line. Particular
components are assigned to particular vehicles, in order to assemble vehicles
conforming to those ordered by dealers, etc. After the vehicle is fully
assembled, an employee scans all labels. A printout is made that permits a
comparison between what components were supposed to be included in each vehicle
and which components actually were assembled. The label on the emissions
equipment is also scanned prior to emissions testing, in order to record the
component in the emissions test data base. Purchases include labels, label
printers, scanners, printers, computer terminals, and equipment to interface
with the plant 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.
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
* 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
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.
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 mold maker and its foundation are not
taxable, since the molds are used in manufacturing the product for sale. The
nontaxable equipment includes everything from the sand muller to the exit of
the molds from the mold maker.
* The computer that controls the molder is not
* The purchased software and the computer in the
engineering shop are taxable, since they do not actually control the
* The conveyor that moves the molds from the mold
making process is taxable, since the molds do not enter the manufacturing
operation until they reach the caster.
* The caster is production machinery. The caster
and its foundation are not taxable.
A paint manufacturer makes paint pursuant to
customer specifications. After a batch is finished, a sample is ladled into a
quart jar and taken to the lab for testing to assure adherence to the
customer's specs. In the lab, twenty cubic centimeters are placed in a
beaker which is then placed in a centrifuge. After centrifuging, the separated
components of the paint are examined under a microscope for content. The test
results are manually entered into a computer. The computer generates a printed
report and a label, both listing the test results and other information about
the particular paint batch, e.g., name of customer and date of manufacture. The
label is attached to the quart jar which contains the remainder of the paint
sample. The jar is placed in a storage cabinet where it is retained for five
* The testing procedure assures the quality of
the completed product and the equipment which is used in conducting the testing
is not taxable. This includes the centrifuge, beaker, and microscope.
* The ladle, quart jar, and the storage cabinet
are not used in testing nor in any other aspect of the manufacturing operation
and are taxable. In addition, the quart jar and storage cabinet are used
primarily in a function related to storage, record-keeping, and therefore are
* The computer, computer printer, and jar label
are used only to record the test results and are taxable.
A manufacturer operates a job shop foundry where
it melts ingots of raw pot metal in an electric furnace. The molten metal is
poured into jacketed molds, through which water is circulated to speed up the
cooling and solidification of the metal. The water is pumped from a tank,
chemically treated, and conveyed by pipes to the molds. The heated water is
filtered and pumped from the molds to an outside cooling tower and then
returned to the same tank. Make-up water is pumped from a well on premises into
the tank. The treatment chemicals are stored in liquid form in a tank, from
which they are pumped and metered.
* The furnace and molds are part of the
continuous manufacturing operation and are not taxable.
* The water is an energy transmitting substance
since it removes heat from the manufacturing operation. The water treatment
chemicals, water pumps, pipes, well and cooling tower are not taxable. Since
the water tank is part of the recirculation system, it also is not
* The chemical storage tank, meter, and pump are
taxable, since they are merely storing or handling consumables prior to their
initial use in the manufacturing operation.
* Since the trucks are registered for highway
use, they are taxable.
A large manufacturing facility is located on
three hundred fifty acres of land on the outskirts of a large metropolitan
area. The production machinery and equipment is spread over several miles. The
plant property is divided at various points by a river, a railroad, and a
public highway. Work in process is moved from one production phase to another
by large licensed trailer trucks. A private bridge was constructed to cross the
river, a tunnel was constructed under the railroad, and the trucks cross the
* This property is contiguous since the
separations are only public or private rights of way and not land used for
other public or private interests.
* Since the trucks are registered for highway
operation, they are taxable.
A plastics manufacturer uses injection molds to
form the product. Excess plastic trim is knocked off the molds and collected on
a conveyor. The conveyor moves the trim to a grinder where it is reduced in
size. Another conveyor moves the plastic to a regrind bin where it is stored
until needed. The reground trim is manually removed from the storage bin in
hoppers and added, in certain proportions, to the purchased plastic pellets in
the feed bins for the mold injection presses.
* Since the trim is recycled back into the
manufacturing operation, the entire process of collecting, transporting,
regrinding, and reintroducing the trim is part of the manufacturing operation
and not taxable. The regrind storage bin is holding in-process product between
stages of production and is not taxable.
A steel manufacturer operates two plants. Plant A
produces basic steel in a BOF furnace and has bar and hot rolled strip steel
producing lines. Plant B, located several miles away, produces cold rolled
strip coils. All production lines produce steel scrap in the form of trimmings
or defective product. At plant A, scrap from both lines is chopped to size and
taken to a storage area. When needed it is added back to the furnace to be
again used in steel production. The scrap from plant B is chopped to size and
taken to plant A where it also is used to make new steel.
* Since plants A and B are not contiguous, they
are separate manufacturing facilities.
* Since the scrap at plant A is returned to the
furnace, all items of property used to handle and store the scrap are not
* The equipment used to handle and transport
scrap produced at plant B is taxable since the scrap is transported to plant A
* Since the choppers at both plants change the
form of the scrap, they are not taxable.
During paper manufacturing, the fibers that will
comprise the finished paper product are put into a water solution. The water is
drawn by an intake pipe and pump from a river that flows next to the
manufacturing facility. The water is filtered and chemically treated and pumped
into the hydropulper where it is combined with wood chips and other fiber
source material. The resulting slurry is pumped to a fourdrinier which removes
most of the water by means of vacuum pumps. The water so removed, as well as
slurry that otherwise escapes the process is collected, since it contains
usable fibers. This slurry is returned to the hydropulper by pumps and
* The water is a consumable that is used in the
manufacturing operation. The river intake, pumps, filter, and chemicals are not
taxable since they either treat the water or transport the water from the point
of extraction at the river.
* The hydropulper and fourdrinier are production
machinery and not taxable.
* The slurry recovery and recirculating is part
of the manufacturing operation, since it recycles the product back into the
manufacturing operation at the same manufacturing facility. The pumps and
piping are not taxable.
A plastics manufacturer generates steam in
coal-fired boilers. Eighty-five per cent of the steam is used to heat reactor
tanks, in which the first step in the manufacturing operation takes place. An
insulated steam line carries the steam from the boiler to the reactor vessels.
Fifteen per cent of the steam is diverted from the main steam line to heat the
buildings in the manufacturing facility.
The coal purchased to fire the boilers is
received at a river dock. The coal is unloaded from barges by a crane and is
moved from the dock by a conveyor belt to a conical storage tower. As needed,
the coal is pushed by a small bulldozer into a feed bin, which dumps the coal
onto another conveyor belt which moves it to a coal pulverizer. A screw
conveyor moves the pulverized coal from the pulverizer to a storage bin.
Another screw conveyor removes the pulverized coal from the bin and a forced
air system injects it into the boiler combustion chamber. The rate of injection
is computer controlled.
Water for the boiler is pumped from the river,
filtered, chemically treated, and stored in a water tank outside the boiler
building. As the water is pumped from the storage tank, additional chemicals
are added. Both the water and the air used to inject the pulverized coal are
preheated by means of a heat exchanger in the boiler exhaust stack.
* Eighty-five per cent of the coal and boiler
water chemicals are not taxable, since eighty-five per cent of the resulting
steam is used in the manufacturing operation.
* The boiler and main steam line, including the
latter's insulation, are not taxable, since a majority of the steam is
consumed in the manufacturing operation. The line which carries steam for
building heat is taxable.
* The coal unloading and handling equipment and
the pulverizer are not taxable. The conical storage tower and the pulverized
coal bin are taxable, since they merely store the coal.
* The forced air pulverized coal injection system
is not taxable.
* The river water inlet, pumps, lines, filters,
and treatment chemicals are not taxable. The water storage tank is
* The boiler exhaust heat exchanger is not
* The computer that controls the pulverized coal
injection is taxable.
A manufacturer of ready-mix concrete uses a steam
generator to heat water which is used in mixing and warming component materials
in the manufacture of ready-mix concrete. The concrete is sold to construction
contractors and other consumers.
* The water is not taxable, as it transmits heat
used in the manufacturing operation and becomes part of the product produced
* The generator is not taxable as it makes the
water suitable for use in the manufacturing operation.
A manufacturer of extruded rubber products uses
injection molding machines to force rubber through dies in order to form the
desired shapes. The molding machines are operated by compressed air. The air
compressor is fed air from an air dryer. The dryer is necessary to keep
moisture out of the air compressor lines and production machinery.
* The injection molding machines are not taxable
as they are production machinery which act upon the product.
* The air dryer and compressor are not taxable
because they make the air used to power the molding machines suitable for use
in that function.
A steel manufacturer uses coke in the production
of iron. Coke is a fuel which provides some of the heat required for smelting
and it is also the source of carbon, a necessary ingredient in the manufacture
of steel, which dissolves into the hot metal.
Coke is manufactured from metallurgical grade
coal in a coke plant. The coal is crushed, blended (high and low volatile coals
are mixed) and transferred to the ovens by means of conveyor systems. The
crushed, blended coal is placed in a larry car which runs across the top of the
coke ovens and charges the coal into the ovens. The coke battery consists of a
series of ovens lined with refractory brick which bake the coal to produce
coke. The coke battery is built from the ground up and does not have a separate
* The coke battery and the coal crushing,
blending, and charging systems, and larry cars are not taxable.
A manufacturer buys a new coal pulverizer. The
coal is fed to a boiler to produce steam to generate electricity to power
equipment used to manufacture products.
* The pulverizer is used to make the coal
suitable for use in the manufacturing operation and is not taxable.
A boiler is used to produce steam which primarily
operates machinery and equipment used in the manufacturing operation. Other
equipment feeds water into the boiler. This includes items such as pumps and a
piping system. There is also a system which filters and treats raw water drawn
from a creek running through the manufacturing facility.
* The boiler is used to produce power for the
manufacturing operation and is therefore not taxable.
* The water is used to transmit energy to the
manufacturing operation and is not taxable.
* The piping, pumps, filters, and water treatment
equipment are not taxable.
A manufacturer installs an electrical
distribution system, including generators, transformers, electrical switchgear,
cable and related equipment. The electricity is used solely to produce and
supply electricity to the manufacturing operation.
* The entire electrical generation and
distribution system is not taxable.
A manufacturer of specialty coil steel products
uses natural gas to heat annealing furnaces. The furnaces heat treat the
manufacturer's product and are part of the continuous manufacturing
operation. In a field owned by the manufacturer and adjacent to the plant, the
manufacturer drills two natural gas wells, using a drilling rig, trencher, and
various other tools, and installs drips, pumps, and transmission lines to
provide gas for these furnaces. The manufacturer also installs a gas line
connected to the local utility company line through which purchased gas is
piped for heating the buildings in the manufacturing facility. A branch line
connects this purchased gas line to the line going from the wells to the
annealing furnaces, in order to supplement, if necessary, the gas produced from
the wells. One hundred per cent of the well-produced gas is burned in the
annealing furnaces. No more than twenty per cent of the purchased gas is burned
in the furnaces.
* The line connected to the utility's line
is incorporated into the real estate, since it primarily carries gas to heat
the buildings. The wells, pumps, transmission lines and associated equipment,
and the branch line remain personalty, since they carry gas for use in the
manufacturing operation only.
* The wells, pumps, transmission lines and
associated equipment, and the branch line are part of the manufacturing
operation and are not taxable since they are extracting and transporting fuel
used in the manufacturing operation.
* The material for the line connected to the
utility's line is taxable.
* The drilling rig, trencher, and other tools
used to install the well and gas lines are taxable.
A manufacturer purchases pumping and filtering
equipment and related tanks and tubing to supply lubricating and coolant fluids
to drilling and cutting machinery. This equipment is used to recirculate the
fluids so that they may be reused in the manufacturing operation.
* As the fluids are being treated for reuse in
the manufacturing operation, the equipment which moves and treats the fluid is
A manufacturing operation uses water as a coolant
in its production operation. The water is continuously recirculated in a closed
system. The recirculation system includes a cooling tower and related pumps and
* As the water is a substance used in the
manufacturing operation, the recirculation system equipment is not
The production of flatroll metal products
requires that an oil mixture, which serves as both a rolling lubricant and a
coolant, be continuously sprayed on sheets in the rolling mill. Spent oil is
simultaneously removed and passed through a filtering process which is
interconnected with the rolling mill, after which the oil is resprayed onto the
* The rolling mill is a production machine and is
* The oil filtration machinery treats the oil for
reuse; therefore, this equipment is not taxable.
A manufacturer of truck and tractor engines uses
what are known as wet machines in its engine head and block assembly lines.
These machines require the presence of a liquid coolant to operate. In the
absence of such a coolant the machines would heat up rapidly, ultimately
destroying the tool and the part being machined. Therefore, the interface
between the tool and the block or head is flooded by spraying it with liquid
coolant, a water soluble oil.
In order to save on the expense of the oil, the
manufacturer devised a system to recapture the used liquid. After the coolant
is sprayed on the component, it drops through a funnel-like chamber into an
underground trough. The coolant collects in a u-shaped channel along with the
scrap metal chips and dust produced by the machining operations. The coolant is
conveyed through the underground trough by means of air pressure to a
collecting tank outside the plant where a conveyor lifts the bigger chips from
the coolant. These chips then enter a chipwringer which wrings out excess
coolant. From the tank, the coolant is pumped back into the plant through a
series of pipes. Along the way, it passes through a series of filters which
removes any remaining metal particles. Thereafter the coolant is returned to
the machining lines where the process begins anew.
* The entire recirculating system is not taxable.
The oil is used in the manufacture of the engine heads and blocks. The
recirculating system is used to filter this oil to make it reusable for the
manufacturing operation. The substances are in fact intended for reuse and not
for disposal or sale.
A producer of alloy steel uses an acid solution
to pickle its products. The pickling process removes scale. After pickling, the
used acid is filtered to remove impurities. The filtered solution is then
pumped into a tank where pure acid is added to the solution in order to raise
the acid content. From this tank, the solution is pumped and piped into the
pickling tanks. After the acid is reused a certain number of times it can no
longer be purified and strengthened sufficiently to be economically useful. It
is therefore transported through a series of pipes to an acid disposal plant,
where the acid is neutralized by mixing it with lime in a tank designated the
neutralizing tank. The mixture is then pumped into a sludge pond.
* The acid solution would not be taxable as it
interacts with the product. The pickling tanks are production machinery and
thus also not taxable.
* The pipes from the pickling tanks through the
filtration system are not taxable, as this is a treatment system which makes a
substance used in the manufacturing operation reusable, and the substance is in
fact intended for reuse.
* The piping system used to transport the spent
acid to the acid disposal plant, the pump into the neutralizing tank, the tank
itself, the lime, and the pumps and pipes used to dispose of the neutralized
solution are taxable under this rule as at this point the substance is not
intended for reuse.
An automobile manufacturer has a plant which
stamps out steel to make automobile body parts. The manufacturer employs an
engineering firm to procure and generally oversee the installation of a cold
press machine which presses sheet metal into doors. The engineering firm
contracts out the labor for installation of the piece of production machinery
in the manufacturer's plant. The contractor which installs the machine
bills the manufacturer directly.
* The charges from the contractor for the
services to install the machine are not taxable as they involve the
installation of an item used primarily in a manufacturing operation to produce
tangible personal property for sale.
A manufacturer builds and furnishes a new
administration building. The building contains offices for executives and the
personnel and accounting department. The manufacturer leases a computer to
process personnel, payroll, accounting, and billing information.
* All office equipment and furnishings located in
the administration building are taxable.
* The computer is taxable.
A food processor has an automated batch system
for dry ingredients. The ingredients are received from outside suppliers on
pallets in bags, cartons, paper drums, etc. They are moved from the receiving
warehouse area by forklift, which deposits the pallets near the dry batch
mixer. Some ingredients are dumped by employees directly into the mixer. Some
are dumped into feed bins which discharge directly onto a scale. The proper
amount of ingredient per batch is programmed into the scale by an employee. The
scale controls the feed bins, opening them in turn and shutting them when the
proper weight is reached. The dry ingredients are mixed and discharged by a
covered conveyor to the next stage, where water is added.
* The dry ingredients do not undergo a change in
state or form until mixed with water; however, the manufacturing operation
begins as to the dry ingredients when they are dumped into the feed bins or
directly into the dry batch mixer, since they have been committed to the
manufacturing operation when the materials handling (via the forklift) from the
warehouse ceases. Thus, the bins, mixer, and scale are not taxable.
* The forklift is taxable.
A manufacturer uses a forklift primarily to move
finished goods from a storage warehouse and load them on trucks for shipment to
* The tangible personal property in the warehouse
and the forklift are taxable, since they are storing or handling a completed
A manufacturer purchases storage equipment for
the purpose of storing raw materials prior to commitment to the manufacturing
operation includes tanks, racks, holding bins, and similar equipment.
* Such storage equipment is subject to
A fiberglass manufacturer generates fiberglass
waste as part of its manufacturing process. The waste is collected in various
ways, including a vacuum system with collection hoses that permit workers to
clean up small particles. The vacuum system deposits the fiberglass into a
holding bin. Larger pieces, including rejected material that fails quality
assurance testing, is transported in skid boxes by lift truck. All waste
fiberglass is baled and transported by the manufacturer's trucks to a
landfill for disposal. All employees in the plant are required to wear masks to
prevent them from inhaling glass fibers.
* Since the waste fiberglass is not sold or
recycled by the manufacturer, the baler and all of the handling equipment,
including the vacuum system, is taxable.
* The protective masks worn by the employees are
Replacement parts for production machinery are
kept in storage bins in the plant storeroom.
* While the parts are not taxable, the storage
bins are taxable.
A manufacturer has its employee parking lot
repaved. It separately purchases the required materials and contracts the
* The materials incorporated into the parking lot
are taxable as the lot is real property. The labor is not taxable as it
pertains to an improvement to realty. Had the manufacturer entered into an
agreement whereby the contractor provided both material and labor, there would
be no direct tax consequences to the manufacturer.
A manufacturer purchases a heating system and
other related parts to be incorporated into a manufacturing facility. The
heating system will provide heat and serve solely for the building.
* The heating system and all related parts
purchased will be taxable since it is used to produce heat for the building and
not used in any manufacturing operation.
A manufacturer of unassembled furniture has an
extensive dust collection system throughout the manufacturing facility.
Collecting units are located over the boring mills, saws, edgebanders, planes,
and other places in the plant. Fans and ductwork exhaust the dusty air through
a series of filters. The saw dust falls from the filters into movable hoppers.
These hoppers are periodically dumped into a mixer, where the saw dust is
blended with a small amount of liquid adhesive. The mixture is removed from the
mixer by a screw conveyor to a press which forms it into briquettes which the
manufacturer sells. The briquettes fall onto a conveyor belt which moves
through a heat tunnel which causes rapid drying.
* The entire dust collection system is taxable,
since it provides environmental control throughout the entire manufacturing
* The portable dust hoppers are taxable, since
they are handling a waste product.
* The adhesive, mixer, screw conveyor, press,
belt conveyor, and heat tunnel are not taxable, since they are used to
manufacture a product for sale.
A manufacturer makes various kinds of candy
canes. The process requires that temperature and humidity in the plant be
maintained within certain narrow parameters.
* Since the temperature and humidity are
regulated in the plant as a whole, rather than a special, limited area within
the plant, all the equipment used to provide such regulation is taxable.
A manufacturer of automotive parts paints the
parts as part of its manufacturing process. The painting is done in paint
booths, which are enclosures containing ventilation and other equipment that
provide the booth with a controlled atmosphere so that paint is applied to each
piece under nearly identical conditions, resulting in a uniform product. The
paint is applied by a spraying system which results in a considerable amount of
overspray. To flush this excess paint from the booth, a water spray flows
through continuously. The water is drained from the booth into a treatment
system which filters out the paint. Neither the paint nor the water is reusable
in the process, so they are disposed of in accordance with pollution control
* The paint booth and its ventilation equipment
are not taxable since they regulate the environment in a special and limited
area of the manufacturing facility.
* The water spray equipment is also not taxable
as it is necessary for the continuation of the manufacturing operation.
An automotive parts manufacturer is ordered by a
federal inspector to install guardrails along the sides of aisles traveled by
forklifts and a floor sweeper in order to provide a barrier for the protection
of employees operating nearby machinery. The inspector also requires the
installation of flashing lights on the moving equipment. The forklifts are
primarily used to move in-process product.
* The guardrails are taxable.
* The forklifts themselves are not taxable since
they are used for materials handling during the continuous manufacturing
operation, so the flashing lights attached to them are not taxable. The
flashing lights attached to the floor sweeper are taxable.
All of the manufacturer's employees must
wear ear plugs, safety glasses, hard hats, and steel toed shoes when in
production areas. Some employees must wear leather or rubber gloves and aprons,
depending on their jobs. The manufacturer provides all of these protective
articles to the employees without charge, except eyeglasses and shoes.
Employees must provide their own eyeglasses. However, the manufacturer usually
buys, by special order, safety shoes for the employees and sells them, with a
minimum markup to cover administrative expenses.
* All of these protective articles and clothing
are used in taxable functions. The manufacturer consumes everything except the
eyeglasses and shoes and must therefore pay tax on its purchases of those
* Since the manufacturer is making retail sales
of safety shoes, it must have a vendor's license and collect sales tax on
such sales made to the employees.
* The employees must pay tax to the suppliers of
their safety glasses.
A manufacturer produces electronic equipment. Its
process requires that static electricity be eliminated from the environment. If
it is not, the static will destroy the electrical components. In order to
ensure that the static electricity is properly discharged, the manufacturer has
its production employees wear a wrist bracelet which attaches to a grounded
object. The manufacturer also requires that the production employees wear
contaminant-free overalls so that the production area remains free of
* The wrist bracelets are not taxable since they
are equipment necessary to the production process.
* The overalls are taxable since they are
clothing worn throughout the plant instead of in a special and limited portion
of the manufacturing facility where the environment is totally
A manufacturer has several safety concerns in the
manufacturing plant for which it has taken various measures. It has attached
guards to certain of the production machinery to protect the workers from
injury and placed safety signs at various points throughout the plant. It also
furnishes clothing and other equipment to workers primarily for the
workers' safety and protection. Finally, the manufacturer hangs fire
extinguishers on walls throughout the plant.
* Machinery guards are attached to the production
machinery and are therefore not taxable.
* General safety items, unless actually attached
to production machinery, are taxable. Therefore, the safety signs, clothing,
and other equipment are taxable.
* The fire extinguishers are taxable.
As part of the manufacturing process, welding
robots are used throughout an assembly plant to weld the various components of
the final product. Fumes created from the welding process contain harmful
complex metal oxide compounds from consumables, base metals and the base metal
coatings, creating safety concerns for employees throughout the manufacturing
facility. Special ventilation and exhaust systems are installed in the direct
vicinity of the welding operation to supply fresh air and exhaust the fumes
containing the harmful components. The ventilation and exhaust equipment is not
essential for puposes of continuing production, but merely is in place to help
cleanse the environment of the manufacturing facility.
*The special ventilation and exhaust systems are
neither incorporated into machinery or equipment used in a continuous
manufacturing operation and do not qualify as excepted safety equipment, nor
totally regulate the environment in a limited area of the facility where such
total regulation is essential for production to occur. As such, the systems are
A manufacturer installs probes on a grinding
machine, in part by using a special tool that was purchased for that purpose.
The grinder is production machinery. The probes measure vibrations in the
bearings of the machine while it is operating. A chart recorder records the
data from the probes. When vibrations exceed a certain tolerance, new bearings
are ordered and installed, thus allowing the manufacturer to make the repair in
a controlled fashion and avoid extended downtime and/or more extensive damage
to the grinder.
* The probes are not taxable, since they monitor
the functioning of equipment used in the continuous manufacturing
* The chart recorder merely makes a record of the
monitoring and is taxable.
* The tool purchased to install the probes is
* The replacement bearings are not taxable, since
they are incorporated into equipment used in the manufacturing
A manufacturer shuts down a reactor, which is
used in the manufacturing operation, for routine maintenance. During shutdown,
a section of the reactor wall is cut out, removed by crane, and a new section
is welded in. Thereafter, the reactor is cleaned and the lines are flushed in
preparation for start-up. All work is done by employees of the
* The labor performed to remove the old section,
install the new section, clean the reactor and flush the lines is not
* The new section of the reactor wall is not
taxable as it is part of a production machine.
* The welding torch, crane, equipment used to
clean and flush the reactor, and related consumables, such as acetylene and
cleaning compounds, are items used to clean, repair, install, or maintain
personal property in the manufacturing facility and are therefore
A manufacturer purchases two trucks to move work
in process between buildings within the manufacturing facility. One truck is
not registered for highway use since it is used solely on the
manufacturer's private property. The second truck is registered, since it
must travel a short distance on a public highway which passes through the
* The unregistered truck is not taxable, since it
is used in materials handling of in-process product.
* The truck registered for highway operation is
A manufacturer of paper products uses an
extremely large and complex paper-making machine. The machine consists of many
parts and requires constant servicing. Some parts themselves are massive and
heavy. These parts must periodically be removed and replaced.
The manufacturer uses what it calls the wet end
crane to lift, remove, and replace these heavy parts. The crane is sixty feet
above the plant floor and it traverses the entire length of the paper-making
machine by means of overhead rails.
* The wet end crane is taxable as it is machinery
used to repair, install, or maintain real or personal property in the
Concrete pipe is made in a forming kiln. The
formed pipe is moved by lift truck to a steam room where it cures for one day.
The steam curing speeds up the necessary chemical reaction to harden the pipe.
Steam is produced by a propane fueled boiler. The propane is stored in six
tanks, with lines going to a single vaporizer which converts the liquid into
gas. The concrete pipe is removed from the steam room to an area where
employees patch and smooth pits and flaws in the pipe. The pipe is then moved
to an outside storage area where it remains for at least twenty days to allow
final curing. When sold, the pipe is loaded onto flatbed trailers by a yard
boom truck. Movement of the pipe in the facility is done by three
interchangeable lift trucks. The lift trucks are used seventy-five per cent of
the time moving the pipe to and from the steam room, twenty per cent of the
time moving from the finishing area to the yard, and five per cent of the time
in miscellaneous activities. The lift trucks are battery powered and share the
use of a single battery charger.
* The propane, propane lines and vaporizer,
boiler, and hand tools used in finishing are not taxable. The propane storage
tanks are taxable.
* The lift trucks are primarily used for
materials handling as part of the continuous manufacturing operation. The lift
trucks and battery charger are not taxable.
* The boom truck is taxable.
A manufacturer produces bottle caps and furnace
air filters at its single facility. The bottle caps are die punched from coils
of sheet steel strip. The bottle caps are then passed through an inspection
device and any caps which are found unacceptable are carried by a conveyor to a
bin where they are held for sale. Acceptable caps continue through additional
steps which include printing and the insertion of a gasket. After the bottle
caps are punched from the sheet steel strip, the remaining perforated strip is
recoiled and moved by a lift truck to temporary storage racks, from which point
it is further trimmed to length during its assembly into furnace air
* This constitutes a single manufacturing
operation that produces two different products at the same manufacturing
* The punching, printing, and gasket insertion
equipment are all used in the production of the bottle caps and are therefore
* The recoiling equipment and trimming equipment
are production machines and not taxable.
* The device for inspecting the bottle caps is
not taxable since it is used for testing the product.
* The lift truck and storage racks are not
taxable because they handle or temporarily store in-process product.
A manufacturer purchases sheet metal for
fabrication into various products. After initial storage, the sheet metal is
transported to slitters by a propane powered lift truck. The slitters cut the
sheet metal to length, after which it is transported to the stamping presses.
As the steel goes through the stamping process, excess metal in the form of
chips is produced. The metal chips are removed from the stamping area through a
chute and conveyor system which transports the metal chips to a baler. The
baler compresses the chips into bales which are then sold to industrial
customers as scrap metal.
* The sheet metal is committed to the
manufacturing operation when deposited at the slitters by the lift truck. The
lift truck and the propane used to power it are taxable.
* The slitters and stamping presses are
production machinery and are not taxable.
* The metal chips are scrap. Since the scrap is
sold, rather than being reused in the manufacturing operation at the same
facility, the chutes and conveyors which handle the scrap metal chips are
* Since the baler changes the form of the chips
which are intended to be sold, the baler is production machinery and not
A meat processor makes sausage, wieners, salami,
bologna, and similar products. After grinding and mixing, the meat is extruded
into casings of various types and sizes. The meat is then smoked and/or cooked.
After cooking the casings are removed and discarded.
* The casings are consumables that physically
interact with the product during the continuous manufacturing operation and are
A dairy purchases raw milk from farmers. The milk
is picked up by trucks owned by the dairy. Upon arrival at the dairy facility,
a pump removes the milk from the truck through a pipe and pumps it into a
clarifier, which is a centrifuge that removes particle contaminants. From the
clarifier, the raw milk is pumped into a storage silo where it is held for
period of time. After the raw milk is removed from the silo, it proceeds
through various processes, including separation (where cream is removed),
blending (where cream is added back to reach proper butterfat content),
standardization (where vitamin supplements are added), pasteurization, and
homogenization. After homogenization, the milk is pumped to filling equipment
which packages the milk in cartons or jugs.
* The trucks which deliver the milk from the
farmers and the pump which removes the milk from the trucks are taxable.
* The clarifier actively refines the raw milk by
centrifuging and is not taxable. The clarifier is the beginning of the
manufacturing operation and the raw material (milk) is committed at that
* All equipment, pipes, pumps, and tanks
(including the silo holding the raw milk), which process, move, or temporarily
store the milk up to and including the homogenization process, are part of the
continuous manufacturing operation and not taxable.
*Any equipment or supplies used to clean the
processing equipment, pipes, pumps, and tanks discussed above are not taxable
because they are part of a continuous manufacturing operation to produce
An ice cream manufacturer purchases cream, skim
milk, sugar, and various flavorings and additives. The cream and milk are
placed into refrigerated tanks when received. Any particular flavoring is
placed into one of several storage tanks. All of these tanks are connected by
piping to a mixing tank. In-line meters control the amount of cream, milk, and
flavoring withdrawn from the tanks and batched in the mixing tank. After
mixing, the ice cream is packaged into cartons and moved by conveyor through a
freeze tunnel, where most of the ice cream becomes solid. After the freeze
tunnel, the packaged product moves slowly through a hardening room on roller
conveyors. The hardening room is a large freezer where the temperature is
maintained at minus thirty degrees. The solidification of the ice cream is
completed in the hardening room. On exit from the hardening room, the product
is shrink-wrapped in appropriate quantities (e.g., four half gallons),
palletized, and moved by lift truck into a large freezer to await
The tanks, freezers, and some in-process piping
is cooled by a refrigeration system, which consists of compressors, condensers,
piping, and an in-line tank for the coolant. Based upon an analysis of the
refrigeration system piping used in the various areas of the facility, it has
been determined that twenty per cent of the system is used to cool the cream
and milk tanks, ten per cent for the mixing tank, in-process piping, and
packaging operation, thirty per cent for the freeze tunnel and hardening room,
and forty per cent for the freezer warehouse.
* The initial storage tanks for the cream, milk,
and flavorings are taxable.
* The milk, cream, and flavoring are committed to
the manufacturing operation at the point they are metered prior to entering the
mixing tank. The meters and subsequent piping and the mixing tank are not
* The ice cream is not completed until it leaves
the hardening room. The freeze tunnel, hardening room, and roller conveyors are
*Any equipment or supplies used to clean the
freeze tunnel, processing equipment in the hardening room, and roller conveyors
are not taxable because they are part of a continuous manufacturing operation
to produce ice cream.
* The forklift that moves the palletized product
into the freezer warehouse is taxable.
* The freezer warehouse is taxable, since it is
storing a completed product.
* Sixty per cent of the coolant is taxable, since
that is the proportion of this fungible used in a taxable manner.
* The condensers, compressors, and tank for the
refrigeration system are taxable, since their quantified primary use (sixty per
cent) is taxable.
* Since the refrigeration system piping is
essentially identical, it is properly treated as fungible for sales tax
purposes and is sixty per cent taxable.